I ran across a YouTube video that wasn’t just worth sharing, it was worthy of a blog entry complete with video and written transcription. It’s about day trading, something we’ve been seeing many people get into during this COVID-19 pandemic. I suggest you check it out as you can get a lot of insight on YouTube during these trying times where information is becoming very easy to consume.
Learn How to Day Trade
Speaker 1: About a week ago, I downloaded a stock trading app called Robinhood. I knew absolutely nothing about the stock market. Today, I can watch a video like this-
Speaker 2: Then I saw when it hit the resistance, it ended up opening at 130. Then I saw when it hit the resistance at 140. I’m going to get a little bit closer. It built a new resistance at 165 and a new support at 160. It looks like it broke that support.
Speaker 1: -and I actually understand it. In this video, I’m going to run you through what I did to learn the stock market in a week and hopefully save you some headache and show you some shortcuts. First up, Robinhood. It is the first trading app that is free. For the past 20 years or so, anytime you wanted to trade stocks, you either had to pay a broker or download a software that would allow you to trade but they always charge a transaction fee per trade. Those transaction fees would be anything from 5 to $20, which means unless you know what you’re doing and you’re planning on holding a stock for a year plus, you’re immediately in the red and you can’t really do anything.
That changed with Robinhood. About a month ago, my friend told me about it, and I decided to take a look at it last week. Upon messing around with it and buying my first AMD stock, we’ll come back to AMD in a minute, I told myself, “You know what? I’m going to actually take this seriously because anybody I know that’s really good with stocks is really rich. I’m actually going to invest in time and try to educate myself on how all this works.” This video is not going to be a tutorial, it’s not going to be a how-to or anything like that. I’m just going to tell you a bunch of things and give you a bunch of words that you need to research and learn.
If you do it the way I did it, within a week, you should know how the stock market works and how to trade and how to do it effectively. If you’re one of my older viewers or somebody who watched my videos because of making stuff, this YouTube channel is not going to turn into a stock market YouTube channel. I treat this channel as more of like a portfolio and showing my work. For those of you who are watching my videos for the first time, I’m actually a manufacturing engineer, and I design stuff professionally for a living. I take people’s ideas and turn them into mass production. If you’re interested in stuff like that or how things are made, check out some of my other videos.
First thing, there’s a website called Investopedia. It’s a Wikipedia for investing. If you hear any word or anything that you don’t understand or don’t know in this video or in any videos that I recommend, pause the video and either search on Investopedia or Google or YouTube. Take the time to understand what the word is and then come back and unpause the video. This is what I did for the first couple of days. Yes, it’s very tedious and very time consuming and kind of boring, but it’s the quickest way to learn. That’s pretty much how I did what I’m about to show you. I’m going to save you a bunch of time so you don’t have to sit through all the scattered information on the internet.
The first thing you need to know about the stock market is there’s two ways to invest. There is analytical investing and there is fundamental investing. They are two totally different things. Don’t mix up strategies with one or the other because they can spell disaster for you. Fundamental trade is like Warren Buffett, JP Morgan, old school trading where you research a company, you dig down through their quarterly reports, you know everything about them, you know what they’re selling, you know what the products are, you know what the bottom line is, you know what the income is, you know what their competitors are, and you know all the information about the competitors too.
That’s the old school way of investing. It still works and it’s still very important. I recommend, whether you want to be a day trader or a long-term trader, that you learn the fundamentals of trading. Some things that you should Google and learn: income statements, balance sheets, and cash flow statements, also 10Qs and 10Ks. All of those things are very, very important for fundamental. Now, analytical investing is a more modern approach of investing. That’s the one that you’re probably most familiar with, where some guy is sitting in front of like 20 screens with all kinds of data running through it. That’s analytical investing.
It’s not nearly as complicated as it seems. Now the way analytical trading goes is there’s a few different types. The two main ones that you’ll see is day trading and swing trading. They’re essentially the same as far as principles and philosophy. Day trading is what it sounds like, you buy a stock and you sell a stock on the same day usually within minutes. It’s very quick trading. You can make a lot of money if you can do it effectively. Swing trading is where you buy a stock and you sell it the next day or a few days later or a week. It’s a very short-term trading.
Before we get into any more of that, I need to explain to you how the stock market works and what makes it go. Now if you’ve ever looked at a stock market chart, it’s probably looked something like this. Now what analytical traders do is they try to figure out if the stocks going up or down, and if you can do that, you can make a lot of money. The way they do that is looking for what’s called supports and resistance lines. The stock market moves up and down no matter what and it rarely ever stays straight. These oscillations can be predicted if you know what to look for. It’s basically just looking for patterns. That’s all it really is.
The most fundamental way they do it is they look at the peaks and the valleys and by doing so, they can predict where the stock market is going to be in the future. The simplest way is just going off the last two peaks of what they have. If this is the top line, this would be considered the line of resistance, and this would be called the support line. Now what day traders and swing traders will do is they watch the stock, and they graph out where these lines are. There’s a lot of different ways to do this. This is the most simplest way. In the next video, I’m going to show you all the different kinds of ways you can do it and my particular setup that I’ll be using to test out.
What these guys do is they watch the stock and as it’s moving up and down, if it crosses the resistance line or the support line, it’s called a breakout. This right here is where it would be considered a breakout. Now day traders and swing traders buy stock right here at this point. They will ride the line up and recalculate where the new resistance and support lines are and that’s how they make their money. That’s the basics of analytical trading. Now while this seems very simple, it’s not. It’s very complicated, and it takes a lot of experience and understanding what you’re doing.
The reason the stock market goes up and down is because really big investors come in and they buy a lot of stock. Now they can do this for a bunch of different reasons. It can be like the 10Qs and the 10Ks, the quarterly reports, maybe they did a bunch of research on the company or the company is about to come out with something. There’s a million reasons why a big investor might buy into a stock. Well, day traders and swing traders pick this up using scanners. They can see when these stocks are about to jump up. A good analogy would be big investors are like freight liners or cruise ships, massive ships moving a lot of stuff. They’re making really big wakes in the water.
Day traders and swing traders are more like speed boats and jet skis. They come in, they jump up and down on the waves, they have fun but then they are gone pretty quickly and they don’t go very far, except that the waters are also infested with sharks and filled with rocks and if you fall off, you’ll probably die. Day traders can see when these stocks are about to go up. They have what’s called scanners that will pick up the stocks that are about to fluctuate really high. If they pick them up in time and analyze the data, they will buy into the stocks right as it breaks the resistance line.
(For an entire course on swing trading, learn more here.)
When that happens, the stock usually skyrockets and the day traders and swing traders will ride these waves up and then sell out at the top and make profit. That’s how they make money. Now if you’re wanting to day trade, there’s two things you really need to understand. That’s volume and float. Now volume is the total amount of shares being sold in a given day or a given moment. Float is really important to know because it allows you to understand how much work risk and reward you’re going to get when you take a trade. Float is the total number of stocks out in the market that you can buy as a trader. It’s different from the total share cap of a company. It’s not the same.
There’ll be people in the company that own shares but they usually don’t trade them a whole lot and that’s not calculated in the float. It is different. The reason float is so important is because the less amount of shares there are in the market, the more volatile that stock will be, the more it will jump up in price or jump down in price. For example, if there’s 10 million shares floating in the market, if all of a sudden the volume of the stock goes up to say 500,000 or a million, that’s 10% of the total stocks. That stock is going to be moving a lot versus say a company like Apple, who I think has over a billion shares out in the market right now.
If there’s a million shares being moved in a given day, that’s less than 1% of their total stock. That stock price barely fluctuate and it’s going to be a major risk for not a lot of reward. What day traders and swing traders look for are stocks with low float and a lot of volume being moved. If you want to get into day trading and swing trading, some things you should research and understand is, well, let’s start with the scanners.
There’s two types of scanning. There’s pre-market scanning, which can be done in a bunch of different ways. You can use a dedicated software to do it, which all those costs money or the way I’m going to be doing it starting out because I don’t have a lot of money is using TD Ameritrade software called thinkorswim. It’s free to use but you have to put in I think $50 and start a brokerage account with them. It is a scanning and analysis platform. I’ll be showing you my setup. Another thing to look up is gap scanning which is analyzing the difference in trade between the stock market closing yesterday and the stock market opening today.
The other one is called momentum scanning or also momentum trading. That’s what I just explained about the stock market going up and down in the resistance lines and all that. Now analytical traders look for patterns, and here is a list of all kinds of different pattern types. I suggest you research them, understand what they are and how they work. Now, I’m going to show you thinkorswim. I’m just going to brief over the software and show you how it works and what it does.
If you don’t understand anything that I’ve said or maybe about the show, don’t worry. Just stop the video and research it and then come back and continue.
This is thinkorswim and this is probably what you’re familiar with when you see somebody talking about the stock market. I know it looks super confusing right now, it’s not, trust me. Now I’m just going to brief over all this stuff and in the next video, I’ll go into more depth because this video’s already pretty long. This right here is my analysis for how much a stock is going to be up and down. This is where I calculate support and resistance lines and where I should buy and trade stocks. This chart over here is a little different. It actually shows the momentum and the volatility of the stock, so whether it’s going to be jumping up the price or not.
This is my quick look. This is what I’m going to be using for finding stocks quickly into seeing if they have potential. If they do, then I look at this little chart to analyze where I should buy and sell. Let me clear all this out and I will just start with very basic so this is not nearly as confusing. I’ll get rid of that and then fewer studies. When you start your thinkorswim account, this is what you’ll have when you start. We got a bunch of different tabs up here. You have charts, marketwatch, scans, analyze, trading, monitoring. Starting out, all you really need to know is scanning and charts but all the other stuff is also important and you should learn down the road.
Some things to know on this chart is one, if you want to add studies and analysis like I was showing you, you go here and hit Edit Study and there’s all kinds of different types of analysis you can do. I can add Ichimoku which is a fantastic analysis. I highly recommend that you take the time to learn it. It’s complicated and it’s confusing at first but if you understand it and you can figure it out, it’s very, very useful. It’s one of the best analyses I’ve seen so far in my research. You can also just click here and this will take you right to the studies you currently have. I’m going to take it off.
What we’re looking at here is candlesticks and volume measurement. Like I said earlier, volume is something you want in a stock. Now the white is the after-hours trading. This is after 4:00 PM the last day and 9:30 AM which is when the stock market opens the next day. The only transactions that usually happen at this time are big purchases like big investors or hedge funds or something like that, or just electronic things going on. It’s real low volume time. It’s not really when you want to invest, especially as a novice starting out. Most of the big investments and the money you’re going to make is within the first two hours of the stock market opening. That’s when all the fluctuations happen.
Then by eleven o’clock usually the market evens out. Now candlesticks tell you where a stock opens and closes. Down here is where it opened that, right here’s where it’s closed at, when it’s green. When it’s red, it’s the opposite. This is where it opened at and this is where it closed at, so it dropped. Now the little sticks that are coming out of it, that is the highest that was sold at and the lowest that it was sold at. The stock could open here. Some people could buy stuff upto here but then a bunch of people sell it, and it drops down here but then it comes back up and it closes there. Those are called wicks.
Real quick, some things you know about the chart, you could go here. You can select what timeframe you want to see on your chart. I’ve got mine custom set to two days one minute. Then you can see every trade one minute apart or you can do five minutes, five days. It’s five days apart. The whites are the opens and closes. Up in the top left corner as I move back and forth, you can see the time period and stuff. It also tells you open, high, low, close, stuff like that. Now when a stock is just going back and forth like this, this is called consolidating. This market doesn’t really know where it’s going. There’s no trades or sales. There’s low volume. Nothing’s happening. That’s not when you want to buy stocks.
However, as you see as it hits here, it starts to go up and it gets a trend. This is during closing hours and then there’s some big movement but throughout the rest of the day, there’s not really much going on. If you actually even start to draw trendlines, just from this very simple trendline. You would match it at the top of the open and then the top, the max sale here and then we’ll just drag this out past here. That’s a basic trendline and then you do your support line right about here. Now over here, you will see watchlists. You can customize these and you can follow stocks that you want to follow.
Now the way find stocks is you can go here to scans and type in the parameters that you want. Like I said, day traders like to look for stocks with really high volume and really low float. You can’t search for float but you can– I’ll show you a few ways to check that now. This is a really basic search. It’s stocks between ¢30 cents and $5. The reason you want to go from low dollar stocks is usually there’s more volatility in them and you’ll be making more money.
As someone starting who only has $1,000 like me, if a stock is a $1.50, you’re not going to even be able to buy a thousand shares, so you’re not going to be able to make a lot of profit. Which is the hardest part about starting is you’re not going to be making a lot of profit and you’re still risking about the same. Like I said earlier, Robinhood is a free trading app, so what I’m going to do is use thinkorswim as an analysis tool and trade on Robinhood. But there’s something called the PDT rule or the Pattern Day Trader rule. This is a government thing where if your account’s flagged as a day trader and you have less than $25,000 in your account, your account will be locked for 90 days.
The stipulation is you can only make three-day trades every five days, so three-day trades a week. What counts as a day trade? If you buy a stock and sell stock in the same day, that’s a day trade. Now you can swing trade but you’re also risking a little more and if you have not a lot of money starting out, it’s eh. If we go here, I don’t think it’s going to work right now if you hit Scan because the stock market is closed. It’s Sunday night. Nothing’s going on. Now when you do a scan, you can actually load these scans in your watchlist.
If the stock market was live right now and I could go down to personal bullish bears nightly scan, I picked this off of a stock market community YouTube, I can’t remember but I’ll have links in the description below for the videos and stuff. You can select this. If the scan was actually bringing up anything, you could see it in the watchlist right here. Now back to charts. Let me get rid of these. When a stock is going up in price, this is called bullish. It is rising. You’ll hear this a lot, bullish and bears. When it’s going up, it’s bullish. When it’s going down, it’s bear, as in bear and there’s nothing going on.
If we go upto 180 days, you can see it’s the same thing. No matter whether you’re looking at 1 day or 180 days, the stock is always fluctuating. It’s always oscillating no matter what. If you pick up these oscillations and you learn them and you figure out how to replace your money, you can make money from this. That’s the basics of analyzing and scanning data. The basics of it’s pretty simple but getting good at it’s where it takes practice and just knowledge and experience. I highly recommend you don’t just jump into stock markets and try to do this after watching a couple of videos.
What you want to do is start a paper account which is trading fake money, you can practice. One of the nice things about Robinhood again is it’s free. There’s no transaction fee which means if you want to, you can just buy one stock and see what happens for a dollar a share. You’re not going to be losing anything. Just remember the Pattern Day Trader rule and don’t be more than three a week. Now one thing to note, the difference between a paper account and a real account, when you place orders, they go instantly in paper accounts because it’s just fake, a stimulation.
In real life, if you buy too much stock and there’s not enough volume there, your sales won’t go through or you’ll lose a bunch of money because you’re trying to sell something but nobody’s buying them. The price could tank and then you’re stuck with shitty stock. Keep that in mind. That’s a really important thing that a novice needs to know is paper money is instant, real money is not. You really have to pay attention to volume. One last thing I’ll show you is Finviz. This is a pretty nice website for also finding and scanning if you want to. You can go to screeners and then get rid of the pop-up. You can do performance plus or minus, whichever you want to go. Let’s do the past week up.
Any stock that has been going up in price for the past week, price under $5. Because we don’t have a lot of money, we want to keep it low relative volume. It’s the current volume. These are all the different stocks. You can go to snapshot and this is a year-long progression of the stock. You can see, you got your support lines going here. One thing that is nice about Finviz is when you find a stock on here, you can click it. Right here is the shares floating, so this is how many shares are in the market. If you see a high volume, a million volume in a stock and there’s 85,000 like this, you’re not going to make a lot of profit on 85,000. 1,000, it’s like 0.8% of the total stock.
The price is going to go up a cent or two, and you’re going to be risking a lot of money for no profits. You want to look for stocks around 10,000 float. Lastly, some YouTube channels to follow. Stock Market Community. I think this is a few guys that upload videos on one channel, but they’re very detailed in the nuances of trading. They go into real good detail on their videos. A great playlist on their channel is Omar Momentum Trading. I’ll have a link in the description below. Pretty much all of my analysis and scanning was learned on that YouTube channel.
Another one’s Warrior Trading. This guy is really expensive, but he’s been doing it for six or seven years. He’s got courses on his website, and he makes a lot of money. He’s really good at what he does. I think the courses start at $4,000. If you’re somebody who’s really strapped for cash like me, I’m only going to be starting with $1000, he’s probably not the guy for you. He does have a lot of great videos on there regardless, but he doesn’t go into the nuances as much. He also has a bestselling book, How to Day Trade, which I think has four and a half stars on Amazon, and 380 reviews.
He actually had a webinar just last Friday as I was learning and I was able to pick it up free through there. That was pretty awesome. Another one is Rick Gutierrez. He’s another day trader. He doesn’t go into the details and stuff as much, but he does videos almost every day, and he covers really basic entry-level stuff. If you’re brand new to it, you don’t know anything, highly recommend his YouTube channel. The last one is EatSleepProfit. This YouTube channel doesn’t have a whole lot of videos, but there are really well edited and he’s very concise and gets to the point when he actually makes a video.
Lastly, websites that you can use. Finviz, which I already mentioned, which is a graphic analyzer. I’ll go into detail on how you can use that to scan for stocks. Seek Alpha. I haven’t used it a whole lot, but it’s a very popular website. It does graphs and stuff. You can use it for analysis and stuff like that. Then StockTwits. This is actually a live stream of tweets that are about the stock market. I really recommend that you have some kind of newsfeed going on.
Also, all of the YouTube channels that I talked about also have chat rooms and stuff that they use where a bunch of people, like thousands of people, are in, and they talk about which stocks are getting hot and stuff in the day. You should really look into joining one of them and finding one that fits you. Lastly, Yahoo Finance, which is really good for doing the same analysis is like Finviz or stuff, but also it shows the balance sheets and income reports and cash flow statements.
If you want to research fundamental investment and compare and contrast companies, that’s really good for that. That’s what I actually first started using when I was researching fundamental trading. That’s how about it. In the next video, I’ll show you the details and nuances of scanning and how to analyze data.
I hope you enjoyed this transcription. If you did, please give us a comment below as we’ll be looking to do more of these in the future.