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This article was written by Dave Fisher who specializes in IVA advice in the United Kingdom.

Short Term Money Trading

Given that numerous financial institutions exist in the market place at any one time, many of whose business it is to merely make money from trading the money market. Instead of selling products and services they sell and buy money in the short term.

With such a robust secondary market, one would expect the most efficient provision of financial service, with the sheer competition between institutions necessitating the lowering of profit margins across the globe.

Credit itself is the cornerstone of such coordinated action, as every seller of a short term security is in effect borrowing money from the buyer, and without credit, the short term money market does not exist. This flows on to the consumers who having less employment, have less money, and in essence this is a contraction in the economy. If this continues this will be known as a recession. A lot of people feel that it was this kind of thing that cause the current economic collapse.

An investor may need to fund an investment in another country, so they sell short term notes in the market and convert the currency, which allows them to fund their foreign position.

The funds are invested in short term paper which yields a return higher than that paid the account holder, and a profit is made. It’s all about lending at low rates then turning around and investing at high rates. These papers are sometimes known as PTDs.

A bank bill is an example of short term paper that is not government backed, but being guaranteed by a bank, is the next best thing. This bank bill will generally have a maturity of 90 days and is often the most liquid of all short term notes. If corporations are known to be needing large reserves of cash to fund a particularly heavy season of trade that is imminent, or if they will be receiving large amounts of money from seasonal trade like at Christmas time, if welfare payments are expected to be paid to recipients, or tax debts to be paid to the government; all these events signify the flow of money into, and out of the economy.

If an investor is able to invest capital at a relatively high rate, if later on the cash from consumers is held in the business bank accounts after a heavy season of holiday trading, it will then seek to be invested in the market and the sheer supply of lenders money will drive interest rates down. This is where the investor will then reverse the position simply by borrowing at a lower rate.

An odd thing happens if you put up a stock price chart and ask a bunch of people what the trend is.  Even when its completely obvious to someone like me, as in not any question at all, you will still get many different answers based on the exact same chart.This results from people not knowing how to find a trend on a price chart with any speed or accuracy.  It is actually quite simple, and is a key thing to know if you want to learn to trade.

The first thing to do is to size the chart properly.  There is no point of putting up 5 years of data if you are looking for a daytrade to hold for 5 minutes – that is completely pointless.  So here is a guide for what you need as far as time loaded on a chart:

Daytrade:

1. 1 min chart:  Have at least 2 hours of data (120 bars) on the screen but no more than 6 hours (1 full day).
2. 2 to 5 min chart: Make sure you have at least 3 hours of data up, but no more than 2 days.
3. 10-15 min chart:  Have at least 3 days of data up, but no more than 1 week.

For swing trades, which are a longer term hold, you will want a 10 to 30 minute chart on your screen, and additionally about 10 days of data.

Once you have the data up on the screen, make sure you are looking at a "bar chart" and not a "candlestick chart".  This is easier to see the trend.Start by looking for every V bottom area.  Anytime there is a low with a V bounce, make note of it.  In addition, look for / top areas where it spikes up then sells off.Focus in on the major ones where it moves significantly away from that area in a short period of time.Next you will want to get your charting draw tool and connect the V to each other V you see.Connect the / to each other /.Connect the low areas on the V, and then the highs of the /.  Again, this is a key to learn how to trade.

Lines that slope from the lower left up to the right means the stock is in an uptrend.  Lines that slope from the upper left down to the right means the stock is in a downtrend.Another easy method: Go to the first bar on the left, and then to the very last price on the right hand side.  Draw a line between the two.  If the line is sloping up – its an uptrend.if the line is sloping down to the right, then the trend is a downtrend.  The other key thing to look at is the oscillations around this trendline.Does it go up and down 2pts, up and down 1pt, up and down .50 etc - on average, not exact.This is how you can tell in general the strength of the trend.  The lower the oscillation, the stronger the trend.  The theory here is the buyers (in an uptrend) or the sellers (in a downtrend) are so strong that it hardly budges against the buying or selling.

Another thing to keep in mind the more you practice, the faster it gets – the lines are no longer necessary.I can glance at a chart and know the trend and approximate strength within seconds.  In addition, you will always want to know the trend on the next higher timeframe than you are trading.  For example, on a 5 minute chart the trend might be up, but on a 15 minute chart it is still down.  This needs to be paid attention to, because the longer term trend can push the shorter term trend back into a downtrend.  In general, you want a higher term chart to be a multiple of 3 vs the chart you are trading.So the way it works is if on a 1 min chart, you also want to look at a 3 minute chart - if you are using a 5 minute chart, you want to look at a 15 min chart also.  Once you can easily tell the trend of any chart, other aspects of learning to trade become much easier.

An interesting thing has happened in the last 6-8 weeks.  There are almost no sellers.  Literally.The market has made a massive directional push up and really just holds up and does not correct now.It seems almost funny now how difficult it is to short anything for more than maybe 20 minutes or more.As most traders find out - fighting the market is pointless, all you can do is react to what you are given.This action sure makes trading hard, the guys that are really getting the most out of it are the buy and hold.

One thing I know is that no matter what these guys do that are chasing and then bidding the market so it does not sell - it will sell eventually.  The only way you actualy make money, whether day trading or longer term investing, is to  lock in profits.  Until then its just a fantasy.  At some point they will tip the tide to the point where a majority are actually fearful of losing gains and then the selling is real.

A favorite pattern lately has been to break down below a support (or even key support) and then out of nowhere a massive burst of buying comes in to rescue the market.  It happens so often I now expect it to happen.Most of the time this results in a new low being made, followed shortly by new daily highs as the buyers chase like crazy.

Even in the height of the bull market, we would repeatedly have 10-15+% corrections in the market that would last a month or so.   And this was when everything was just perfect (or everyone thought so).Because of this I am not sure what is actually going on.  Several theories are in play that I think about:

1. Shorts are completely or mostly out of the market.  The SEC messing with the short rules before caused a panic, and now there are many proposals again in regard to uptick rule and shorting.  Rather than get caught, they are staying away from day trading and longer term positioning.
2. The level of manipulation appears high.There is a group of funds or banks backed by the Fed and Treasury whose goal it is to push the market higher to form the opinion that the economy has turned.  The way the rescues happen like clockwork, the ramps into the close every friday, and other very odd trading behavior gives this some credence imo.  Would be easy for the government to just give these guys money to push the market up.
3. Traders are mostly gone, and computer algorithm trading takes over.This can happen also - computerized trading has taken over more of the futures market, which in turn drives stocks.Since no one tries to fight this trend, with all of them doing the same thing it just feeds on itself.I like this theory too because the actual price variance is so unusually low on these large pushes higher.I have seen the DJIA futures push up almost 100pts in 20 minutes with hardly a retrace at all, even at the high.Of course this type of thing has happened before, but not nearly as often as it does now on a daily basis.

Whether any of these theories are true or not, I have no idea and may never find out.  All I know is the trading action is very odd and I expect at least half if not more of this gain to be gone when this is done.  Note - I am not predicting a top, I am saying that when this is done, these idiots will undo this much faster than it actually ran up as everyone heads for the exits.The market could hit 9.000 or 10,000 etc.  I really dont think 10k is possible, with GM dust, C is dust and a few others they just dont have the fuel for the DJIA to actually push up that high in the short term.

Maybe everyone just needs to learn to trade again – this is the new market to stay!

When looking to trade the market, most people don’t realize there is a difference in the time of day that definitely affects how stocks act. Not using this information makes it harder to make money through any type of trading, short term, long term, or even day trading. In addition to time of day, whatever method you employ, whether a trading system or just some tools, will also have certain times of the day where they tend to work better or worse. This type of action can only be discovered by tracking the signals or stock picks that are flagged, then seeing over time when the best use is.

The first 30 minutes is usually the craziest time. Stocks can have bigger swings up and down as there are not a lot of established orders from bigger funds in the market yet. It is a great time for daytrading and short term trading of stocks because of the increased volatility, but with that also comes increased risk of a stopout. Also there really is not much in terms of support and resistance created yet, but you can look at the last hour of the prior day for clues. Sometimes using a stock trading system can be of assistance when the market has increased volatility, assuming you have thoroughly researched and tracked the trading ideas it might send out.

From 10am EST until about 11:30-45 EST is prime time for trends to develop. Of course the times are not exact, but a time range where a decent, continuing trend will try to develop. Also the volatility calms down alot, making it easier to put in a stop that is closer to the actual price when day trading. For longer term investing, usually this is not the time to make a decision on entrance, its too early in the day. An exception would be any entrance based off a daily breakout, or some other key fundimental news that is just starting to push the price of the stock. Entry when that happens is ok during this time.

From about 11:45 until 1:15pm EST stuff usually slows down alot, and fake moves can happen. Fake moves refer to price action where something is acting weak then moves up out of nowhere and vice versa - making it easy to get stopped out. Most of this is just due to decreased volume and liquidity. Program trading bots and algorithm day trading bots love this period of time in the market. Every move that gets started seems to fade, or they can create the appearance of X happening, suck some traders in, and then do the opposite. This also makes it very difficult for most traders, as it will seem just when a move gets started, it abruptly ends, especially hard for those learning to trade. Of course there are enough names that do really move and keep going, but these are impossible for the most part to sort out from the ones that stop and reverse until the move is too late.

Stuff will generally pick up after 1:15 for about 45 min or so, then slow down again near 2pm EST. Often, 2:30pm EST is a key time to watch - reversals often start here. Countless times the market will put in a top or bottom near this time and then reverse into the close. Does it happen all the time? no. But it does happen enough of the time its well worth paying attention to. Volume should pick up after about 3-315 EST into the close, whether there is a 2:30 reversal or not. This is again a good time for day trading, AND its good for watching for longer term additions as you can see if the stock is holding gains, pushed above key resistance, has made a major reversal on daily chart etc.

One thing to note here, is in recent times they have shifted the 2:30pm stuff to the last 45 minutes of the day (meaning instead of 2:30pm est, they do this at 3-3:15 est).Success comes from noticing patterns of behavior and anticipating what might or should happen.  A big part of trading is not just knowing what trade setups happen in real time, its anticipating patterns of behavior.

Most people have heard of the futures market, and it does get mentioned on news shows such as CNBC or MSNBC. A lot of people just don't understand what exactly the futures market is. Learning how to utilize it properly will help with entry timing when day trading, swing trading, and even investing (after all, who wants to be down immediately after entering a position?)

It’s actually quite simple. The futures market is simply a bet on where an index will be as of a specified date in the future (hence futures market). That is not any different than having the opinion "I think GE will be 3 points higher in 3 months". Now imagine thousands or people, or even hundreds of thousands all betting on where GE will be in 3 months. Not tomorrow, the time is 3 months from now.

This aggregate valuation call would be considered a futures market. It could be higher or lower than where it is now, but you also have to remember that there is 3 months time to be right. Time always has a value, because the more time you give yourself to be right, the easier that bet is. So the market puts this time value into the price of the futures, and each day that goes by a bit of it decays (goes away) as it gets closer to the 3 month time. This short 3 month time frame in this example is a fixed amount of time, it does not scroll forward or get bigger. So if the bet is a close of at least X price by july 31st, 2 weeks from now the date to be right is the same but the time left is less.

If this still seems confusing, think about this example:  Every day an analyst says “The market will fall 300 points today." if that happens in just a day, he gets paid a bonus of $40,000.00.  The more days you give him to be right, eventually, even just by random chance, he will be right.  So the time increase you might give him to be right would DECAY the value of the prediction.  Lets say you give him 1 month, but he is now only paid $10,000.00.It the time to be right is 3 months, that is only worth $1000.00.00 and so forth, this is a type of time decay.

This basic concept is then carried over to the stock indexes. Traders and investors place bets based on current and anticipated information and research for what they think the value of the index wil be in the future. One thing to remember is at the expiration date, the futures contract AND the cash contract (the index) will be identical. So if the S&P 500 index is at 1400 on expiration, so will the futures contract trade to this price. Because of this, that difference can be arbitraged between the two (cash and futures) since they trade separately. Anyone can make a bet on the futures market without even touching the cash index or stocks. In just the same way, I can buy a large basket of stocks in the index without touching the futures market. This back and forth action causes the two of them to fluctuate independently.

If the futures get too high (people buying futures but not stocks), there is free money there since at expiration futures and cash are equal. So you can sell the futures, then buy the basket of stocks that make up the index and lock in free money if you hold it until expiration. There are whole other program trades that simply day trade stocks vs futures all day long based on the premium to cash being too high or too low.  By selling the futures, you have agreed in principal to sell the basket of stocks comprising the index at that futures price. If the current price of the futures is 1430, cash value is 1400 and computed time value 20, the futures should be priced at 1420. At 1430, I could place an order to sell the futures and simultaneously buy the component stocks and lock in 10 points of gain. Doing it in real time is not this easy, but the basic underlying concept is.  Anyone who wants to learn to trade needs to understand how the futures market works.

Everyone wants a shortcut to learn day trading or any other kind of short term trading – someone to teach them the “secret sauce” that will take 10-20 years of experience and allow them to come up to speed in a few months. If you needed brain surgery, would you want the guy who got his degree online in 6 months OR the guy who spent 10+ years in med school + residency + specialization? Is that even a fair question?? Well, lucky for you trading is harder than brain surgery… well it can seem like it at least. In actuality there are really some positive things you can do to dramatically decrease the learning curve, BUT there is no holy grail solution or indicator that can ever ever replace experience. That is learned. The one huge key to the path of winning is simply to do things that will not cause you to lose money.

First off, you really need to treat  day trading as a profession. This means act like its a real job and your only way to make money. You will need a dedicated computer for trading only, with 2 monitors - a single monitor cannot show enough data. Older computers are fine for some things, but do not try to use an older computer that is underpowered for trading. I can assure you that computer will fall behind of the task. Nothing is worse than lagging data (meaning the market is at place C but your computer is showing its at place A still) and failed network connections. Trading is super data intensive, make sure you have a computer with at least the following specs:

1. A minimum dual core chip, ideally you want a quad core chip. Each core can run a separate app, really lessens the chance that the computer will stall out. Make sure the chip has a decent amount of L2 cache. if you are not aware of what this is, ask a local computer expert to help you.

2. A minimum of 2gb memory, the more the better. If you want more than 4gb you will have to use a 64 bit operating system. Make really sure before you do this step that whatever software you plan on using is compatible. As far as memory goes, you should be fine with 2-4gb. The faster the memory the better, but no need to really pay up for special memory.

3. a separate, discreet graphics card from AMD or Nvidia. Make sure the card can handle at least 2 monitors. You do not need a high end gaming card, you should be able to get something decent for about 100-150 bucks easy. Do not rely on the built in graphics on the motherboard, they are notoriously underpowered for any graphics intensive software. Trading is extremely graphics intensive - think about real time charting, indicators, order entry, bid ask in real time etc - it adds up.

You only need this on the main computer you will be trading on and doing your charting. You want 1 dedicated screen for order entry and 1 screen for charting. If you have any other computers that are older, those are totally fine for surfing the net, getting news, IM chat and other stuff. I would always keep your trading computer as uncluttered with add on applications as possible. You do not want to be in the unfortunate predicament of the computer crashing or locking up during a trade.

Just like a real office, you need a dedicated space that will serve as your trading center and workplace. It should be setup like you would a desk in an office - phone, light, supplies, computers etc. In order to succeed at trading, you have to treat it as a real business, not as a hobby or whim or a way to get your gambling fix. A hobby is fine, but you cannot expect to become an expert unless you treat it seriously. When you are in a trade or watching a setup to enter, don't let outside junk distract you. This means you need to really pay attention, do not chat with friends or watch tv shows and kind of "glance" at the market. If this behavior would not cut it in an office atmosphere it will not cut it for learning to trade either.

Once the office is setup, it is time to get serious about how learning the in's and out's of the market. While this blog is a great source of information, you really cannot expect to learn everything for free online. Go to amazon.com.or other sites like Trader's Galleria - search for the term "charts" or "stock charts". You want a beginning book and an advanced book on charting. In order to learn about trading, you have to figure out the mechanics of price movement and become and expert at charting. This can and will take some amount of time, and is not easy. As you get better at it through practice, it is much easier to learn new ideas and concepts because you have the background to understand them.

Expect learning charts to take about a year to get good, but in a month or 2 you can get a good start. Again, do not fall into the trap of thinking “if I throw some money at this, someone will show me secrets and shortcuts”. If you don’t have the background to understand, no amount of shortcuts will help you at all because you have no clue about how or why something might work or not work. DO NOT ATTEND ANY SEMINARS OF ANY KIND until you consider you have mastered the basic charting book on your own. IF you think you know enough to tackle the advanced book, then it is probably time to attend a seminar to learn more. Again here there is no substitute for experience. You will need to watch the markets every day, even if its just for an hour or 2 (until you decide its a career move you can make).

Static charts are fine to go over when the market is closed, but you really need to watch it live as well. If your time is impacted because you have another full time job and cannot watch the market here is a secret: Get some screen capture video software (records your screen to video) and an external usb hard drive, probably 500gb will do. Open your charting program, log it on and set up a few real time charts on the screen before you go to work. Set up the software you are going to use for recording to save to the external usb hard drive. You can set up a macro (there are free programs out there that can do this, search Google) if you are not home when the market opens. Set i to record at least an hour of video of the market open and any charts you have open. Then when you get home at night, you can play this back in real time and work on watching for chart patterns. If this does not appeal to you, some of the brokerage firms or data vendors have market replay that can replay parts of the prior day for you.

One last thing I have not touched on yet - charting software. There are tons of them out there. I have my own preferences, but that does not matter. You need to find what you are comfortable with. Some are very complicated and programmable, some are simpler and don’t have as many bells and whistles. If the beginning , I would suggest everyone go with simple. What good is having 500 things you have no clue what they do or how they work?? All that can do is to lead to confusion and add a bunch of things that are too complicated. Just make sure its a fully robust charting package – meaning all charts are live, you can put tick charts AND minute based charts up (not delayed data, live data) AND its not web based. Web based means the program is running in a browser, rather than running as a separate executable. For the most part, you always want a standalone, executable program - they are far faster and speed is money. If your trading platform is integrated with the charts that is totally fine, just make sure its not web based order entry either. Its simply too slow to be of any use. Web based applications and software are totally fine for buy and hold and longer term investing type trading. Winning at trading is about time, even 5 seconds delay can cost you 50c or more per share in lost profit if the market is moving fast. That cost is real and can result in a winner turning into a loser.

While this was not a tutorial on how to trade, I tried to touch on a few subjects often overlooked when people are trying to learn to trade. They overlook these because they either cost money (charting software, real time data, computers) or they think they take too much time so lets find a way to skip this or that part.

As in every business I know, there are some fixed, monthly costs that are a part of doing business. Data costs and chart program costs are one of many costs you will incur as a trader. Often you can get them minimized or waived if you are active, but for probably the first year expect to pay for them as you are learning.