Become a Day Trader - 3 Simple Steps to Consistent Profits

by Brian McAboy

To become a day trader and to be consistently profitable, there are 3 simple steps you must follow unless you want to lose a lot of money getting there.

You want to become a day trader and make consistent profits. You also want to reliably repeat when you hit winners, right? Of course you do! The first goal in trading is profiting. Goal #2 is then making money consistently. Goal #3 is steadily increasing profits.

Your trading profits are primarily controlled by what YOU do, more so than what the markets do. There are traders profiting every single day, so pointing your finger at the markets is simply an excuse. If you want consistent profits, then get more consistent in what you do in your trading.

How to become a day trader begins with understanding that trading is a repeated activity. That's why making use of a proven trading system is so important. If you truly desire to make improvements in a process, and particularly when your goal is achieve greater consistency, the three steps below are ones you can take to dramatically improve your consistency.

Step 1. Clearly detail and document your system. One of the more common mistakes made by traders, particularly regarding consistency, is that they don't have their system well-defined and written down.

When you have an activity that isn't documented, there will probably be inconsistencies in how the task gets performed. The reason the military is so big on following procedure: they insist that things be done in a uniform, reliable and predictable manner. The same thing goes for your trading.

Step 2. Measure your trading system's critical factors. A wise man once stated that for you to improve anything, you must begin by first measuring it. In what other way are you to know if you're making progress? With trading you have several measurable aspects that determine your bottom line, in addition to the all-important profit/loss number at the end of the month.

Businesses in all industries have certain aspects that directly affect the profitability of the business. Savvy business owners know to track those aspects and assign measureables to them. The reason that these are so important as you become a day trader is because through a calculated analysis of these factors, you can then see specifically where to focus your efforts to make specific improvements.

Step 3. Make improvements in a controlled manner. Once you've conducted an analysis of your system, you can now focus on specific facets of your system to make improvements. By having a method for this analysis, you can make changes to the system and test - without risking money - either through back-testing or in a demo account and determine the true impact on the system's performance - and if there are any trade-offs.

As an example, let's say you analyze your system and find that your winning percentage is currently 48%. You've got an idea on how to improve it to 55%, which you "think" would increase your overall returns. Next would be to run the analysis on the system with the change on real market data. By looking at the results, you can see if this change indeed did what you expected, but also if there were trade-offs in other aspects of your system performance, such as a reduced number of trading opportunities. It will be clear now whether you should stick with your current system or go with the modification.

Conclusion. Trading is a process from which you want consistent - and reliable - results. Trading your system is an activity that you do regularly, so if you want want to become a day trader that makes consistent profits, focus on making your actions consistent.

Step 1 is to make sure that you have clearly defined and written down your system. By clarifying your system and then documenting it, you are more likely to repeat what you do consistently.

Step 2 is to run the metrics on your trading for a baseline of where you are now versus your desired goal where you want to be. This also let's you see where to focus for improvement.

Step 3 is to track your metrics and make improvements in a meticulous manner and keeping your risk very controlled.

There are a handful of metrics regarding your trading system that have substantial impact on your profits as you become a day trader. Through analyzing your system's performance and paying particular attention to these metrics, you give yourself the best means to increase your profits. Additionally, this will provide a major boost to your ability to consistently produce profits.

Article Source:
http://www.bestmanagementarticles.com
http://stock-trading-investment.bestmanagementarticles.com

About the Author:
Not sure what metrics you need to become a day trader that profits consistently? Don't know how to calculate them? Don't throw away $500 on backtesting software that requires you to be a programmer. Discover the easy means to do both and feel your confidence soar by clicking here, http://insideouttrading.com/go/becomeadaytrader/

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Gold Indexes: Comparing and Evaluating the HUI, XAU, GDX, XGD and CDNX

by Lorimer Wilson

Market analysts, investment newsletter writers and financial planners are always commenting on how well, or poorly, the precious metals (read gold) mining sector is doing based on how a particular gold/silver mining index is trending but they are not telling you the whole story.

Why not? Because there are more than 40 precious metals mining indexes (indices) that dice and slice the components of the precious metals mining sector to arrive at a wide variety of insights and using any one of them as a basis on which to comment on the performance of the precious metals mining sector does not accurately reflect the true picture of the sector. Making investment decisions without first knowing how each index is structured; the eligibility criteria; the number of companies included; the specific market capitalization of the components; and the degree of concentration and average market capitalization of each index may lead to imprudent decisions. That's the fundamental problem. Below are descriptions of four popular indices and a fifth one that has been largely overlooked by precious metals stock and warrant investors, analysts and investment newsletter writers alike:

1. HUI is the symbol of the AMEX Gold BUGS (Basket of Un-hedged Gold Stocks) Index and is a modified equal dollar-weighted index of 15 gold mining companies that do not hedge their gold beyond 1.5 years. The best way to invest in this index is in HUI options.

2. XAU is the symbol of the Philadelphia Gold and Silver Sector Index and is a market capital-ization index of 16 companies in the gold, silver and copper mining industry. The best way to invest in this index is through options traded on the index.

3. GDM is the symbol for the NYSE Arca Gold Miners Index and is a modified market capitalization weighted index of 31 gold and silver mining companies. The best way to invest in this index is via the Market Vectors - Gold Miners ETF (GDX).

4. SPTGD is the symbol for the S&P/TSX Global Gold Index and is a modified market capitalization index of 19 precious metals mining companies with a minimum market capitalization of US$240 million with no component having a weight in the index greater or equal to 25%. The index is maintained by the S&P/TSX Canadian Index Committee and is calculated in Canadian dollars. The best way to invest in this index is via the iShares CDN Gold Sector Index ETF (XGD).

(GOX is the symbol of another popular gold and silver index called the CBOE Gold Miners Index but it is not included in this analysis as it is limited to only 11, almost exclusively large cap companies and, as such, is hardly representative of the precious metals mining sector as a whole.)

5. CDNX is the symbol for the S&P/TSX Venture Composite Index. This largely overlooked index consists of 558 companies of which 63% are involved in either extracting natural resources from the ground or involved to some degree in the exploration and/or development of such resources. 44% of the companies are engaged in the mining, exploration and/or development of gold and/or silver and other mineral resources; 18% in oil or natural gas pursuits and 38% in non-resources operations.

As Scott Wright concluded in a May'08 article entitled ‘Junior Golds and CDNX' at zealllc dot com, “Since the CDNX is a junior equity exchange, and since mining is its heaviest-weighted sector, and since gold can be considered the driver of the mining stocks, is it too far-fetched to deduce that the CDNX is indeed a good, not perfect, proxy for the performance of junior gold stocks?” I agree!


Below the five indices are compared in detail as never before.

HUI XAU GDM/GDX SPTGD/XGD*** CDNX*** # Component Companies
15 16 31 19 558

% by Market Capitalization (# of Companies)**
Large Cap >6.0B*
80.1% (7) 82.5% (8) 72.1% (8) 77.6% (7) 0.0%
Med. Cap 1.5 -<6.0B*
19.4 (6) 15.1 (5) 22.1 (9) 18.7 (8) 0.0
Small Cap .3 - <1.5B*
0.3 (1) 2.4 (3) 5.4 (12) 3.7 (4) 0.8 (1)
Micro Cap <.3B
0.2 (1) 0.0 0.4 (2) 0.0 99.2 (557)
Average Market Cap:
$8.1B (15) $8.4B (16) $4.4B (31) $6.6B (19) $23.5M

% Weighting by Company (Mkt. Cap**)
Barrick Gold ($24.2B)*
12.4 19.0 11.0 19.6 NA
Goldcorp ($20.3B)*
14.6 15.2 10.4 16.5 NA
Newmont ($19.0B)*
10.2 14.4 9.0 15.4 NA
Kinross Gold ($10.3B)*
4.6 7.5 5.2 8.6 NA
Anglogold ($10.2B)*
5.5 7.6 5.4 6.7 NA
Freeport McMoRan($13.3B)*
0.0 8.3 0.0 0.0 NA
Agnico-Eagle ($7.3B)*
5.1 5.6 5.3 5.9 NA
Gold Fields ($6.4B)*
5.8 4.8 4.7 5.2 NA
Yamana Gold ($5.8B)*
5.8 4.4 5.3 4.6 NA
Harmony Gold ($4.7B)*
6.2 3.5 4.9 3.1 NA
Eldorado Gold ($3.0B)*
6.1 0.0 5.1 2.4 NA
Top 10 Company Total:
76.3% 90.3% 66.5% 88.0% NA

*U.S. Dollars
**NOTE: Market capitalization changes on a daily basis and the components of the various indexes change frequently as the market changes so it is important to note that the above information was as of March 4th/09. Accessing the hyperlinked references will provide you with current information.
*** Canadian Dollars

% Diversification of Resource by Market Capitalization
Gold (est.)
99.0% 92.0% 96.0% 100.0% (35.5%
Silver (est.)
0.6 5.0 4.0 0.0 (
Sub Total:
99.6 97.0 100.0 100.0 35.5
Other Mining (est.)
0.4 3.0* 0.0 0.0 21.3
Oil and Gas Exploration
0.0 0.0 0.0 0.0 6.0
Misc.
0.0 0.0 0.0 0.0 37.2
* Primarily copper

There you have it and it tells it all! It is clearly evident from the above analysis that:

a) the HUI is a small-based and narrow index of companies engaged in the mining of gold (99.0%) in which the largest 5 companies account for 49.5% of the total index weight.

Conclusion: The HUI Index is best used to assess the trend of large and medium cap gold mining companies and should not be used to assess the trend of precious metals mining companies as a whole.

b) the XAU is also a small-based index of companies but engaged in both gold and silver mining. The largest 5 companies account for a full 64.5% of the total index.

Conclusion: The XAU Index is best used to assess the trend of large cap gold and silver mining companies but should not be used to assess the trend of the precious metals mining sector as a whole.

c) the GDM/GDX is a more broadly based index both in number of companies included, the products mined and in the diverse range of companies included (26% are large cap companies, 25% medium cap, 39% small and 6% micro). Indeed, the largest 5 companies only account for 41% of the total by index weight. The GDX also has the advantage of being easily traded.

Conclusion: The GDM Index is the best index to assess the trend of all but the smallest of precious metals mining companies. (See Adam Hamilton's albeit out-dated Dec.'07 article “GDX Gold-Stock ETF” at zealllc.com for additional insight on the GDX vis-à-vis the HUI and XAU).

d) the SPTGD/XGD is primarily an index of large cap gold mining companies in which the 5 largest components account for 66.8% of the total by index weight.

Conclusion: Since the XGD trades in Canadian dollars it should be used primarily by Canadian investors to track the trend of large cap gold mining stocks and not to assess the trend of the precious metals mining sector as a whole.

e) the CDNX is an extremely broadly based and diverse index of micro-cap companies of which almost 57% are primarily involved in the exploration and development of a diverse variety of natural resources. The remaining 43% of the 558 companies are also in the development stage of operations and, as such, are competing for the same pool of financing and management acumen as the natural resource companies to make their operations viable and prosperous.

Conclusion: The CDNX Index is an excellent proxy for assessing the health, performance and trend of the junior mining sector as a whole and micro-cap companies in general.


The next time you read an article in which someone is claiming that one of the indexes discussed here is revealing this or that about the trend of precious metals mining stocks (and usually gold stocks in particular) you will be in a position to know whether you are being given biased or informed advice and be able to take action accordingly.

‘No Bias, No Bull' (with an acknowledgement to Campbell Brown and her CNN program of the same name) is the type of information every successful investor wants to read. I trust this first of three articles on investing in gold mining shares (and warrants) helps you to make informed decisions in the precious metals mining sector.

Article Source:
http://www.bestmanagementarticles.com
http://stock-trading-investment.bestmanagementarticles.com

About the Author:
Lorimer Wilson is an economic/financial analyst and commentator who has written numerous articles (do a Google search for details). He is a Contributing Editor to www.preciousmetalswarrants.com and contributor to a large number of other precious metals, financial, economic, investment and op/ed sites. He can be contacted at lorimer.wilson@live.com.

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