Day Trading Quick Tip # 1 - Know Your Market

Whichever markets you trade (index futures, individual stocks, forex, etc.) it is important that you know each of your markets individually. Knowing each market individually means that you have watched (in real time) and studied (using historical data) each market until you are familiar with the market's usual character, such as:

• the daily range,
• the speed of movement,
• active times of day,
• significant price patterns,
• and important price levels.

When you are familiar with each of these aspects of a market, it is much easier to trade that market, because you can anticipate things like changes in direction and consolidations. Trading an unknown market is like driving on an unfamiliar road at night. You will be hesitant, your reactions will be slower, and you will always be wondering what is coming next. From an emotional perspective, trading an unknown market can be very stressful. The fear that is naturally present will make you make bad decisions (or even no decisions at all), and as you should know if you receive my newsletters, negative emotions are the most frequent cause of a negative profit and loss.

Knowing your market is especially important for day traders (and unbelievably important for scalpers) because short term traders do not have the luxury of time. Swing and position traders usually use daily charts so they often have an entire day to make their decisions. Day traders usually use short term charts (e.g. anywhere from 1 second to 15 minute charts), so they often have only a few seconds to make their decisions. Traders that know their market will have a significant advantage because they will be prepared to make quick decisions, which can often make the difference between a winning (or break even) trade instead of a losing trade.