Page 146 - DCOM510_FINANCIAL_DERIVATIVES

Unit 9: Trading Futures and Option

Notes

Notes Making profit in day trading.

Success in the day trading system happens when you behave like a professional trader. But how
do professional day traders trade?
Each successful day trader has a trading system developed based on his assumptions and research
in the markets, each professional day trader has a market identified. He has to do a detailed
research in the markets and find out the ideas for successful trading. These ideas are then
formulated into hypothesis which is tested and a system is designed based on it. This system
gives you desired signals whenever a predefined event occurs. This signal becomes the base for
your trading decision. This hypostasis is revisited over a period of time and the system is
updated in the light of the changes taking place. A successful day trader needs to define a correct
trading system for himself first.
Success in day trading is all about cutting losses down and making profits higher. One, major
key is protecting you pay in account. A negative balance in you pay in signifies failure in the
market. So a successful day trader has to compulsorily manage his losses effectively. A good
trader needs to have a market anticipation skill that guides him to the decision. I must confess
that a lot of successful trading decision is based on the gut feeling of the trader. Over a period of
time, the subconscious mind of the trader starts becoming activated and gives subtle signals to
him. He needs to believe on this gut feeling. However, the importance of a good fund management
skill cannot be discounted. Also, after designing a trading system, the day trader should avoid
curve fitting. Above all, day trader needs to plan the trade but more importantly, trade the plan.
Lastly, as a professional trader, one needs to be positive for next trade, irrespective of the output
in the last trade. Fear of the trade needs to be absent.

Position Traders

A position trader might make one trading decision and then hold that position for days, weeks
or months. Position traders are less concerned with minor fluctuations and are more focused on
long-term trends and market forces. Public traders and proprietary traders are often position
traders.

With this method, you accumulate more and more of a particular trade over time. To start, pre-
determine your trades by doing economic, accounting, financial, and technical chart research.
Consult other traders to see what they are thinking. You might speak with your full-service
broker to see what his investment bank’s research department thinks. Then, use computer charts
showing hourly and daily price movements, not five- and thirty second price movements. Make
a case for the trade and start building it: this is your position.

!

Caution As the trade sells off and moves lower, you buy more, using the adage buy on the
dips. In the end, sell off your position at the highest possible range of its long-term
movement.

9.1.4 Basis of Trading

The NEAT F&O system supports an order driven market, wherein orders match automatically.
Order matching is essentially on the basis of security, its price, time and quantity. All quantity
fields are in units and price in rupees. The exchange notifies the regular lot size and tick size for

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