Author: WSDT Editor

“Big risk yields big rewards.”

This quote is one of the commonest statements you would hear in the financial world.

This saying might have emanated from investments with some form of guaranteed returns, which makes sense. Unfortunately, this statement is not always true for day trading in a broader perspective.

The Volatility Factor

Stocks have higher returns and volatility when compared to bonds. This fact creates the impression that the bigger you go in, the bigger you earn. But this might be completely different in reality.

A very important factor you must also consider is that day trading doesn’t involve absolute returns and volatility. On the importance scale, your trade size outweighs your entry and exit when day trading stocks.

Your strategy might be efficient, but a large trade size puts you in a risk zone. Taking large trading sizes can blow your trading account quickly. Your position size is determined by how many shares you take on a trade.

Risk vs Volatility

Risk is split into two aspects, namely: the risk associated with your account and the risk associated with your trade. These two aspects are very important in terms of choosing an appropriate trade size. The risk associated with your account and the risk associated with your trade both converge on the volatility of the stock you engage in.

Many experienced traders try to avoid volatile stocks because volatile stocks are not stable. They can switch in any direction at any time.

It is advisable to put three things in check: your stop loss level, the resulting position size, and your risk tolerance level.

If you consider trading volatile stocks as a bumpy road, then smaller position sizes on stable stocks would minimize your risks and raise your chance of making profits.

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The Correlation Between Trade Size, Slippage, and Volatility

In the World Series of Day Trading, most mentors advised day traders to take it slow and small, especially for beginners.

Some emphasized that small spreads on large trading sizes can ruin your trading account easily.

Timing the market, getting the right fundamentals and technical analysis would be strong signs you must look out for in case you want to go in for a big trade size no matter how volatile the stock is.

Larger position sizes can be difficult to exit and it causes slippage. Slippage is when you get a different price than what you expected from an entry or exit.

Slippage is one main factor you must duly consider with high volatility stocks. When stocks become volatile, traders go into impulsive trading, piling up many stocks to get a quick profit.

This form of trading might work sometimes, but it puts the trader at a far greater risk. Don’t just buy a lot of stocks because they are cheap or their prices fell. In as much as you see this as a great opportunity, also take into consideration the fact that not every stock rises after the prices fall.

Some stocks can take months and even years to bounce back. Small trade sizes spread across consistent performing stocks is your sure bet for good earnings.

Final Thoughts

Your risk and reward parameters are what set the boundaries for your trading size. You can decide to go in for smaller trade sizes with large-stop loss or take large positions with smaller stop loss as a way of managing risk.

One of your main goals must be patience! Like a lion hunting a prey, wait for the right chance where the stop is small, pounce on it, and the reward would be good if everything works right.

The correlation between high volatility and returns should not be the only fundamental determinant in going in for trade sizes. Every single trade would have different parameters to assess risks.

News trading is a huge umbrella that encapsulates several trading strategies. It is the core ideology of many trading strategies used in day trading today.

What is news trading?

News trading is riding on news that causes waves on the financial market. News can drive price movements up or down and this sets up a trend.

On the other hand, a trend can be generated by several factors of which the most fundamental is news.

Is news trading popular among day traders?

News trading is one of the most common techniques used by day traders.

Everyone is in one way or the other affected by what is happening around us, especially the financial market. It informs the day trader or investor and leads him in a certain trade direction which causes a certain trend of price movements.

Every day trader uses the news to trade in one way or the other. It is mainly because news generates trends in price movement as we stated earlier.

It is, however, a bumpy road to base your trading solely on this trading technique because it doesn’t thrive on solid technical analysis.

Let’s take a look at the scenarios of when to use this technique and when not.

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Is trading new and trends a good choice?

News trading is not a stable technique. It fits best into situations where there is major news hitting the market. To paint a better picture of how this technique works, let us see some of the pros and cons of it.

Pros

Quite simple to use

Unless you want to use news trading with other indicators, it is one of the easiest forms of trading techniques. Most beginners in day trading prefer this technique because it doesn’t demand much technical knowledge in a broader sense.

You just need to be well informed with news or reports from authenticated or trusted sources.

Quick profits

Most day traders use this technique to make quick profits from the market. Traders try to get the best out of it before the tides subside.

For example, ROKU was a major buzzer in WSDT I. The report on the company’s earnings caused an upsurge in price movement and trends.

So, competitors milked a lot of good profits from it during the WSDT.

Versatility

News trading can be used in various spheres and areas of trading. It is not specifically limited to day trading.

News affects everything in the financial market, because of this, news trading can be used in different types of trading, stocks, and commodities.

The versatility makes it a top choice for many traders who trade on different markets.

Cons

High risk

News trading is a high-risk type of trading. This high risk emanates from the fact that trading on elements can take a twist anytime. Sometimes predictions can be wrong and things might go south. It is certainly not for the faint-hearted.

Unstable or unpredictable market

As we explained in our first point, the market can take a swing at any time, and prices may move in the opposite direction. The instability of this type of trading is what makes it high risk.

Seasonal

Your chances of earning better profit will dwindle in certain financial seasons (nonfarm payroll, earning season, etc.) when certain reports ‘shake’ the financial market.

Most traders see this technique as the kind that you pick out of your pocket when the season is right.

Final words

News trading is a good fit for short, quick earning type of trading but it comes with great risk.

Another important fact to consider is that it is seasonal, so it is not very profitable to use it when there is no major buzz in the financial market. It thrives on an authentic voice’s prediction or anticipation of a major event.

Traders usually combine it with different trading strategies in major competitions like the WSDT to be on a safer side.

If you are a beginner, it would be an attractive side for you, since it requires minimum technical knowledge and skills to use it. But it’s also advisable to calculate the risks and buttress it with trusted indicators.

Day trading, since its inception has seen a lot of widespread myths and aspersions shot at it.

It is quite interesting that the vast majority of the people who cast these aspersions about day trading have never traded at all.

In this article, we will demystify day trading, debunk the aspersions and show you some clear-cut ways on how to go about it.

Here are some of the common myths we sampled:

Myth 1: Gambling

Many people have the false notion that day trading is a guessing game or some sheer luck kind of investment. This common notion stems from the fact that some traders have lost money.

What every day trader (especially beginners) must understand is that day trading is a serious investment and needs practice, attention, and education.

If you get these things in line then you would know how to make the right choice at the right time and reap form your investments.

Myth 2: “Get-rich-quick money” scheme

More than 90% of people who get into day trading have some form of unrealistic expectation. It is widely believed by these people that your bank account starts to overflow within a few days of trading or you just hit the jackpot with 3-4 days as soon as you start investing.

Well, that would surely be in a fool’s paradise. It is not a quick money kind of investment. It can surely pay off with patience, practice and some form of risk management.

Myth 3: You can just trade on news and make a fortune

Many beginners think day trading is very easy. This is because they have the perception that they would have to just know the news and be able to interpret it.

To an extent, this might work out, but this is a shallow way of going about day trading and a very risky path as well.

One cannot just rely on the news or financial events to make good trades. It is recommended to support it with very good indicators to make up strong trades.

Myth 4: Less skill or education is required

Many people jump onto the bandwagon of day trading because they think it is some sort of basic assumption work and you don’t need much understanding.

So, is trading for everyone?

Yes, sure! But like every form of investment that involves money, it needs some form of basic and fundamental education to be able to understand how your trading platform, indicators, and charts work.

Most platforms or brokers have educational packages for traders to sharpen their skills. It would be very prudent to follow live trades to see how it works before you launch out into the deep.

The strongest education would be your own experience. What worked for you and what did not. As a day trader, you must constantly develop your skills, restrategize and personalize what you learn from your mentors, tutorials, and books.

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Myth 5: Scam

There are many negative reviews on websites and forums about day trading and trading as a whole.

The most common of them all is that day trading is a scam. This comes from the fact that many people have lost a lot of money from careless trades. This bitter experience makes them believe that day trading is a rip-off.

Many people starting out day trading just jump into it without any preparation. The fact that they don’t build a solid foundation is a recipe for disaster.

Then this kind of unprepared day traders tend to shift blames and create untrue remarks about the whole day trading process.

This is not to say, that day trading is 100% profit making where you have no possibility of losing, but this doesn’t make it a scam either.

Trading and investment, in general, involve risks at every level and the well prepared are the ones who reap the best out of it.

Myth 6: Extremely high risk

As said already in previous points, in every type of investment, there is risk involved, and the issue of risk is a relative topic. The risk level in day trading can be assessed by experience, tools, and resources, as well as the kind of stock you trade.
It is strongly recommended to get a good education, training, some level of understanding and skills in reading both fundamental and technical analysis before you start.

As a beginner or someone starting out in day trading, it is recommended to take it slow and small, at least with that, you would be able to pull the brakes before you hit a ditch.

Another good way to curtail risks in trading is by drawing and shadowing from mentors.

Most mentors are experienced professionals who have been tried and tested. Learning from these mentors will make it easier.

You can draw from their years of experience, know what works and what doesn’t work, this doesn’t guarantee 100 percent immunity for risks but it does give you some form of a safety net.

Myth 7: Low volatility stocks are very are safe to trade

Many day traders lose money because of shallow assumptions like this one. Logically, it makes a strong point, but, in as much as low volatility stocks have some form of stability, it is not a sure way or guarantees to earn by trading. You have to back it up with strong fundamental and analytical skills.

Low volatility cannot stand on its own as a strong factor to determine your trade. It might be best classified as a good pointer as to which direction you must take in terms of choosing the right stock to trade.

Myth 8: The majority of traders end up in a loss

As we spoke about under risks, you need a good education, tools, and more practice to better your chances of earning. The majority of traders who lose trades mostly don’t put in much preparation.

This is not to generalize the fact that every trader loses trade because they didn’t prepare. Some might have prepared and still lose trades. But the latter group of traders is always likely to have a good come back after a red day.

This explanation can accurately disperse this myth, in fact, the probability of a trader losing trades is widely dependant on several factors. There is a balance, people lose trades, others win, it all depends on the trader.

Myth 9: The stock market is complex

This is a long-standing misconception, especially for beginners. Some of the technicalities and seemingly complex charts scare them off.

In general, there is nothing difficult about the stock market, trades and charts. It all depends on your readiness to learn and gather experience from mentors as well as educational tools.

In fact, many trading platforms have simplified these tools to make it easy for beginners to understand and utilize.

Myth 10: It should be full time

The majority of day traders are part-time, some also do it as their only profession. Setting this perspective as to whether to do it full or part-time would largely depend on your purpose and set target.

Looking at it from another angle other than the target factor, one thing that plays a major role is setting aside time for trading.

This will help you become conversant with not only how the tools and platforms works, but market technicalities and how the system moves.

Familiarizing, adjusting and adapting requires consistency. This consistency will come from the time you devote to better your day trading.

Setting a target and allocating time will dissolve this myth. You don’t necessarily need to go into it full time, your target, dedication and time allocation would be a determinant.

How not to be caught up in these myths:

• Learn how to read, understand and use the charts yourself
• Deduce your own strategy
• Get used to red days
• Take small trading sizes
• Knowing sectors and indices is a huge plus
• Learn how to control your emotions

The most significant part of day trading is knowing the right stock to choose. The right stock is the main target and fulcrum of every good day trading strategy. The amount of gains you’re going to get is directly proportional to the stock you choose.

In WSDT, many traders hit the jackpot with certain stocks. This gave them a winning edge. The strategies, analysis, and trading style all end up with the right stock.

Some competitors in WSDT I made huge losses, some even blew up their account because they picked the wrong stock. Their strategies seemed right, their style was getting on point and their indicators were pointing in a pseudo good direction but their choice of stock crashed everything.

WSDT II is rolling up, and we have put together some of the factors that helped WSDT I winners to choose the right stocks.

What is the right stock?

The right stock is the one that has the potential to earn you profits at a specific time and season on the financial market. Simply put, the right stock is a performing stock.

In light of this, you must also understand that not every tradable stock has this potential.

A stock performing well today might not be doing well in the next 2 weeks or even the next day.

How do you choose the right stock

No constant rule or formula controls the financial market. The market will always keep moving, stock prices will keep changing alongside different parameters, in different directions. This can be an overwhelming task, especially for beginners.

And this is why the issue of choosing the right stock is very crucial. You will need to continually learn, understand and upgrade your skills in this sphere.

Every experienced trader would agree that, in choosing the right stock, one needs to apply different trading strategies and techniques.

The malleability of your stock-choosing strategy and technique shows your level of experience in day trading.

In this article, we are going to show you the factors that most experienced day traders consider when choosing the right stocks.

Risk/Return ratio

Risk/return ratio (aka risk/reward) is a measure of how much an investor can potentially gain from every amount risked in investment.

Investors use this parameter to gauge the returns they expect from every trade they make and whether it is worth the investment.

So it is a comparison of how much you might lose (risk) to how much you might gain on investment.

For example, if an investment has a risk/return rate of 1:7, it implies that you are willing to risk $1 to gain $7.

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How to calculate Risk/Return ratio

Risk/return ratio = net profit (reward)/maximum risk , where a good risk/return is always > 1:3.

Now let’s see how we can apply this formula.

Let’s say a stock that hit a previous high of $35 is now selling at $31, but you bought those stocks at $6200 hoping it would hit a high again.

If that stock hits another high of let’s say, $36, it means you have a profit of $5*200.

Therefore you divide $1000 by $6,200 and that will be your risk/return ratio.

Liquidity

Liquidity is simply how easy you can sell an asset, a stock or a security on the market. That is, changing the value into real cash.

Liquidity talks about how fast a stock or any asset can be sold on the financial market at a price which connotes to its true value.

The liquidity of the stock indicates how fast the stock is selling and it’s demand as well. Basically, if a stock is in high demand it means it has a high liquidity rate or potential, it would, therefore, generate a price trend on the market which would create a certain movement.

Volatility

Volatility is a financial parameter that is used to calculate the dispersion of earnings on stocks.

Volatility can also be referred to as swings in different directions on the stock market, therefore volatility can be simplified as the level of ease at which you can predict the price of a stock.

It might be safe to say volatility is relative to the price stability of the stock. Most day traders consider volatile stocks as very risky.

For them, the higher the volatility, the higher the risk. The trading style or philosophy of the trader will determine whether these stocks are a good fit.

Trend

The trend is simply the movement of the stock. Trend is affected by volatility, liquidity as well as certain financial reports and news.

Most WSDT I competitors capitalized big on some trending stock, which we will discuss later in this article. Trend is one major factor you cannot overlook in day trading in general.

News is one of the fundamental factors that generate a trend. It is however suggested to go in for stocks that trend consistently with a longer time frame, this gives the trader a picture of how susceptible the stock is.

Consistency in trending is one of the most important factors if you want to select the right stock, connoting to the fact that some trending stocks usually turn out to be a 9-day wonder.

Indicators and Signals

Indicators are like road signs in day trading. It is the compass of every good strategy which leads you to the right stock. Indicators can be harvested from a whole pool of factors, such as technical and fundamental charts, trends and market systems.

You would have to keenly observe the signals generated by the indicators on the stock market, stringent observation is required because some stocks often set off false signals and whipsaws.

In WSDT I, a number of competitors obtained their indicators from charts, whiles others followed the ones their team leaders cooked up for them. This is one important decision you have to highlight if you want to have a good advantage in WSDT.

Strategy

Certain stocks fit well with certain strategies. This is due to many factors. For example, if a stock is trending on a certain report, season or major financial announcement, then you might as well look for a strategy that connects with this purpose.

Winners displayed some amazing strategies, and it was a no brainer that they won this competition. As we explained above, the core purpose of a strategy is to wield the potential of the right stock to bring you earnings.

We took our time to compile and expatiate some of the magic formulas that gave WSDT winners the victory ride. Be sure to check these articles on the different types of strategies used in WSDT here.

Stocks in WSDT I Hall of Fame

ROKU

“ROKU was my big winner”
Gary K

It is no surprise that this was one of the most traded stocks in WSDT I. During the period in which the WSDT, was hosted, ROKU was making a buzz on the stock market.

Waves of it’s increasing sales and swamps of online streamers were spreading fast
Most WSDT I competitors took advantage of it and boom! They hit the gold!

What main lesson do we derive here? News! News! News!
News and reports influence strategies and the whole decision machinery in choosing the right stock.

OSKT

“OSKT was my best trade. I held it for 6 hours and made 2 points profits”
Gurtej S

Like ROKU, OSKT was making huge waves on the stock market at the time WSDT I was hosted. Most of the competitors took advantage of it and made substantial gains.

These two above mentioned doesn’t end the list. There were other commonly traded stocks in WSDT I like oil and gas and gold stocks from DRIP & JNUG. The likes of SAP, ACN, ROKU, SQ, BB also raked in good profits for other winners as well

Final words

Your stock selection is one of the main things that will set you apart in WSDT II. It is an area you must deeply consider important and a place you must hit hard to sharpen your skills.

In football, a player can dribble, do all the fantastic skills and kicks, but at the end of the day, the final score is what determines the winner. It’s the same analogy in WSDT. Your strategy, skills, and resources must help you bring in good profits.

And what is the main way to bring in good profits? The right stock!

In WSDT I, most competitors made common mistakes which cost them their position and chances of winning the competition.

In this article, we will talk about 9 scariest mistakes that you can make and how to avoid them.

1. Over Trading /Anxiety Trading

“… I would have secured my third position if I had not over-traded.”  

Gary K

The WSDT has a loss limit to the paper account given (which we will discuss later). Sometimes, when day traders lose on a large position sizes or when they are in their red days, it may seem that everything is going against them.

When the palms are sweaty and the heart is beating faster, traders are prone to making trades driven by their emotions.

Naturally, everyone would like to recover quickly from a major loss, right? And that is where the temptation comes in.

Traders at this point try to force their trades even when there is a lack of good pointers to make up for the loss.

Traders blow their accounts at this point because their minds become clouded and usually go against the direction that the charts or indicators are pointing to.

Experienced traders advice that, the impulsive moment is the period to re strategize and take it slow. No matter the trading storm always stick to your strategy, it is your sure anchor (Read more on our article: The right mental and emotional psychology)

2. Rigid Strategy

Market trends are the fundamentals of most day trading strategies. Every trade you would make in one way or the other would be affected or connected to trends.

News births trends in day trading. If the US announces a spike in employment rate, you would expect that many people would go in for some stocks or make trades that are in connection with this announcement or news. This is how news and trends are connected.

“Earning seasons appear 4 times a year and the WSDT competition took place outside of that period. For that reason, the opportunities we had were less than usual…depending on what the market gave us. We know exactly what we want to see before we enter a trade, so we just wait for the market to come to us”.

Stelios Stylianou

Not adjusting your trading style to moving trends is a grave mistake most traders made in WSDT I.

In as much as there is a section of traders who trade against a trend, it is prudent to always adapt and adjust your day trading strategies to the current market trends which has a connection with the news.

Market trends are like waves, you just need to wait for the right one and get on it with your surfing board which in this case is your day trading strategy.

Stelios (the team leader of the best team, number 1) spoke about how he adapted to the market trends with varying day trading strategies and ideas.

It’s the same way, you cannot wear a T-shirt in winter and can not try wearing a heavy winter jacket under the scorching summer sun.

That is how day trading goes, your strategies must be malleable.

3. Large Trade Sizes

“Taking a big size on this competition can really crush you.”

 Ali Biggz

Making trades of large position sizes can be very detrimental to day traders in WSDT. In as much, it has a lower probability of working for many people, it caused the downfall of many traders in the competition.

The trading account for the competition has a loss limit as I said earlier on and most participants were disqualified from the competition because they blew their account.

Many of them blew their accounts due to large trading sizes.

One of the underlying advice given by most mentors of the competition was to avoid taking large trade sizes. You must carefully calculate the risks and know which trade size you want to make.

4. Picking The Wrong Stock

The type of stock you trade is a great determiner in WSDT. Most competitors had an upper hand in the competition because of certain stocks they picked. Eg. Roku was a big hit for many day traders in WSDT I.

So, this boils down to the question, how do you choose the right stock?

It is apparent that the right stock is the one that is selling or moving fast.

It is not necessarily what is trending but other factors such as volatility, liquidity, multiplier, and indicators come into play.

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5. Lack of Team Play

“People were still calling trade ideas and setups all day during the competition, helping each other, especially the more experienced traders”

Stelios Stylianou 

Most WSDT competitors benefited immensely from the coaching of the mentors. Others might have been able to make headway without active team playing, but many fell on the axe because they didn’t have thorough guidance.

Following or shadowing a team leader or a mentor in WSDT increases your success rate because mentors put up their pre-market lists, solid watch list and indicators, as well as the live chat rooms, which gives you a good push in the competition.

It is better to follow strategies that have been tried and tested before deducing your own. This will save you from the consequences of ‘trial and error’ in this competition.

What’s more? Playing a part of a team gives you the chance to interact, ask and draw from various strategies that will fit into a broad terrain of day trading in this competition.

6. Lack Of Balance

Some competitors traded their live accounts while in the competition because of various reasons, primarily because they needed to pay their bills.

This path is however not for the faint because it requires intense concentration and some form of discipline.

This lack of balance is what made many to fall out of the competition. There would be no strings holding you back from trading your live account while in the competition but you must consider the extra weight it will put on your shoulders.
Stay focused and win.

7. Wrong Trading Hours

This is one of the basic concepts of day trading. All-day traders must keep this at the back of their minds. Trading time is very crucial in day trading and as far as the WSDT is concerned.

Most traders find it more profitable to start their trades during the first hours when the market opens. Others also make their trades, at least, the last 1-2 hours before the market closes.

This choice of trading hours has various reasons attached to it. Many experts have it that, those specific trading hours go with specific types of strategies and trends.

This is widely true since it benefited most of the participants in WSDT.

8. No Trading Plan

A plan must always go with a strategy. In fact, the core part of the strategy is the plan it will fit in.

Most traders usually draw out a scheme and that is what made them successful in the WSDT.

The ones that failed were largely due to lack of proper planning, even though some of them had good strategies, how and when to implement them was the main struggle.

It is like firing your weapon without a target. It will lack power and sharpness. The lack of a proper blueprint on trades gave many traders away, and it drew a big stain of inconsistencies and inefficiency.

9. Lack Of Practice

“Nothing comes easy in this life.. And especially in trading. You need to put in the hours to become successful as a trader.”

Stelios Stylianou

Definitely perfection comes with practice. Many mentors in WSDT reported that some competitors did not take the competition seriously, owing to their failures.

The lack of practice showed up in their trading and it was evident that they wouldn’t last before their next breathe, and the prophecy came to pass.

The main differentiator is practice, that is what draws the strata between a potential winner and a loser.

You eventually become good at something you do over and over again. The WSDT gives you that opportunity to keep trying till you become a better day trader.

Now you have illumination on your path in WSDT, take advantage of the lessons learned from the mistakes that made many to fall in this competition and let it be a springboard to your success.