Why I Became A Price Action Day Trader
I am asked a lot of questions about day trading, but the one question I get more than any revolves around the thought process of why I became a price action day trader. In this article I will specifically address my choice of why I wanted to become a day trader. I’ll follow up with a part two later this week that discusses more about why I chose price action trading as my trading strategy. I actually got started in trading way back in 1991 when I received a small booklet in the mail that was a short story explaining how anyone could get rich trading futures. I won’t call the guys name, but I know he probably introduced more people to the futures trading business than any other person of that time era. His little book was really nothing more than an ingenious marketing ploy that made futures trading seem like an easy way to make your riches. This gentleman basically sold a course that consisted of nothing more than trying to pick market tops and market bottoms with a pattern he called a 1, 2, 3 pattern. It truly was a great marketing scheme, and I am certain this guy generated a lot of income by selling his futures trading ideas, but in the end, I doubt anyone got rich or even made much money using his trading strategy.
After reading through this small booklet a few different times, I was hooked, and I quickly ordered his course and begin studying his materials and putting his ideas into practice through paper trading. This was long before the days of online trading, and very few people even had a computer at that time, so you had to order your charts from charting services that mailed you charts a couple of times per month. You also had to check prices each day in the newspaper, well after the market closed and a day later. Imagine trying to trade today with prices from yesterday! It almost seems impossible in today’s world where we watch prices print in real time to a chart on our screen. To make a long story much shorter, I paper traded for a few months while I saved up enough money to open a trading account. My first few trades actually saw some initial profits, but only momentarily before they all ultimately lost money. I churned through $5,000.00 in little time, and I was soon broke and thinking that there had to be a better way.
Even though I got started in futures, I thought that maybe stocks were a better idea, so I found some stock trading ideas by reading as many books as I could get my hands on. Like my futures trading business, my stock business never seemed to make money. No matter what stock I bought, it was always worth less money than what I paid for it soon afterwards, and in the end, I simply lost another $5,000.00. Needless to say though, I was hooked on trading by this time, and over the next couple of years I saved my money and read every book I could get my hands on about trading. Even if I didn’t know a thing about how to make money as a trader, I was very well educated on the markets and I understood how markets worked. I learned all about fundamentals, technical analysis, brokers, trade types and order types. I was full of knowledge about the markets and trading, but I still had no clue on how to use that knowledge to make a single thin dime. If I bought a stock, it always lost money, and in fact, I still own some cheap stocks from that time era that I’ve held all these years, and they still are worth less than what I paid for them back then. Imagine that!
I was never one to give up quickly though, and anyone that knows me would tell you that I never give up on anything that I put my mind towards accomplishing, and trading was not going to beat me. I continued to dip my toes into the stock market and over the next few years, I started to make money with some of my picks. Looking back now, timing is everything, but I did get smart enough to know that you had to buy stocks that were trending and you had to buy with the trend when it was going up, and that worked well in a bull market. What I did not know or realize at that time was that I was buying stocks at the earliest stages of one of the greatest bull markets of all time, so my timing was very good in that respect and it slowly paid off for me.
Over the next few years computer trading begin growing rapidly and computers lead to a sharp reduction in the costs of entering trades, and that was giving birth to more affordable trading opportunities. As day trading began to gain traction and more and more people begin to make their fortune doing it, I knew then that this would be my path and that I could use my trading skills to make my fortune in day trading. More than anything, this was my chance get to get out of the rat race of corporate America and start living the good life as a day trader. The term “day trading” has a very sexy appeal to it, but trust me, if you make it in this business, you will eventually find it to be very lonely and even extremely boring, although the pay can be exceptionally lucrative. Even though it seems very sexy and appears to be very easy, if it weren’t for the fact that it pays extremely well, I doubt many people would be interested in day trading for very long, because it can quickly become tedious for a day trader to simply sit at a screen and watch prices print to a chart for hours on end.
I started day trading part time in the beginning, because I was employed in upper management for a well known company in corporate America, so I was unable to day trade full time. My ultimate goal though was to transition to full time trading and leave my regular job. I never really lost much money as a day trader, but I never seemed to make much money either in my early trading days. On some days I would make a great deal of money, but on other days I would lose twice that amount. Eventually, after several years of hard work and sacrifice, I was indeed able to leave my job and dedicate 100% of my efforts to full time trading.
Day trading was much more difficult than swing trading as I was to learn over the coming years. Even though I wasn’t making any substantial amount of money for a long time, little did I know that all of those hours of screen time were still valuable to me though, because I was learning the language of prices and price charts without even realizing it. You see, charts and prices truly do speak a language, and if you can learn this language, you can indeed make money as a day trader. It’s now my opinion that anyone that is making money as a day trader actually understands how to read a price chart, even if they don’t realize it. They may call it something else, and they may use other tools to help them interpret what they see, but in the end, if they are making money consistently, then they have a good understanding of prices and how to read a price chart, and this is the basis of price action trading.
As I slowly begin to make money trading stocks, my original attempt to trade futures was always there in the back of my mind, and I knew I wanted to give futures a try again at some point. Over time, trading futures actually became cheaper and required less margin than trading stocks, and even more importantly, the additional leverage of futures made it easier to make larger amounts of money as a day trader. The best thing about futures is that you could sell as easily as you could buy, and there were no special rules to shorting in the futures markets. I slowly transitioned into the futures indexes and a few of the futures currencies before I finally determined that it was best to find one particular market and then become an expert in it.
Because volume is very important to day traders for slippage reasons, I eventually settled on day trading the ES and I now trade the ES or mini S&P almost exclusively. It is almost impossible to have slippage in the ES during regular market hours, so for that reason alone, it’s an excellent market to day trade. It also has some very regular tendencies, so the more you watch it print to a chart, the better you will become at trading it. Lastly, the commissions, in relation to the value of a tick, are so low in the ES that you can make money on only a single tick. That single fact is more important than you might realize, but if you like to scalp, it is very important. In my early days of futures trading, I paid $100.00 for commissions on a single contract, so I had to make a $100 just to break even. Today, I can make money on only a single tick in the ES, so times have certainly changed for the better in that aspect.
Trading futures was really no different than trading stocks, because all I was interested in was following prices wherever they wanted to go. By learning the language of prices and learning how to read a price chart, I could literally trade any market that I could chart that also had sufficient volume, which in turn, eliminated slippage problems. Slippage is not good for a day trader, so always choose a trading market that has good volume if you plan to day trade it. Having had experience trading many different markets, including Forex, I would now never trade anything but futures for all of the reasons I mentioned earlier, including costs, leverage, safety and volume just to name a few. Regardless of what market you choose to trade, the most important thing I can share with you in regards to success is that you must learn how to read a price chart, which simply equates to learning price action trading strategies.
I hope you have enjoyed the cliff notes version of my journey and why I became a price action day trader. Be sure to check back later in the week for the follow up to this article that will detail more about my choice of trading strategy, which is a simplified version of price action trading strategies. If you would like to become a price action day trader, then you can find out more information on how to make that a reality by going to http://priceactiontradingsystem.com/pats-price-action-trading-manual/.