Changes and Updates Since My First Book (2008)

Any viable day trading system must be updated and adapted to market trends and changes in rules and/or regulations. Since 2008, when I published The Truth About Day Trading Stocks, we've seen the biggest bull market in history. This combined with the proliferation of high-frequency trading systems and the virtually zero-interest-rate FED policy has created more volume in the stock market than ever before. Due to high volume and liquidity, stocks have been moving much faster. Because of those factors, I no longer trade primarily the smaller intra-day setups, as I did in 2008. I've been compelled to orient my system more toward swing positions.

This does not mean that you, as a beginner, should not be trading intra-day levels. In this book as well as my training program, I instruct you to start only with intra-day levels. I have you observe the strongest levels, but for the time being, do nothing more than watch. The main reason for this is safety. You won't be holding intra-day positions overnight. It makes no sense to do so and it's way too risky.

Even under my coaching, and especially when you first go live, I'll have you trading only intra-day setups. Eventually you'll graduate to riskier yet more profitable swing trades; meanwhile, you should only take baby steps.

Because I've altered my system, and because of the higher price levels on the type of stocks I now look for, I've increased my stock price criterion to a minimum of $100 and a maximum of $250. I elaborate on this later.

High-frequency trading systems have basically taken over Wall Street. For the small guys, this means the intra-day levels are not as dependable as before. By “small guys” I mean the average novice trader. You have to be more conservative now and the levels you pick more extreme.

Unless you have your own trading group and black box (high-frequency trading computer with direct access to Level 2 quotes and powerful trading software), and millions, if not billions, of dollars, then you have to tread very carefully when trading in this new market. This is why I invented the Fusion. This is the trading of strong swing levels in conjunction with the strong intra-day levels. It's much safer to trade this way now. I still trade off intra-day levels, but what I use now are very defined and strong intra-day levels. I no longer trade “intermediate” intra-day levels. Those are the newly forming levels that are created between the intra-day high and low on any given day. Those levels simply are not dependable anymore—they are very risky to trade.

The Breakdown

• Now I primarily swing trade.

This is by far the most fundamental change to my system. I started swing trading when I realized that the normal intra-day levels are no longer dependable with my established three-tier setups system. I do still use that system, but now I only utilize specific price levels. This will be explained in the intra-day part of this book.

In The Truth About Day Trading Stocks, I stress the importance of not holding overnight. I state this at least 50 times. For the beginner, that rule remains ironclad. If you're new to this system, you won't be holding overnight until you learn the swing portion. Only swing trades can be handled that way, and only if the price levels and rules in my system dictate that you can do so.

I've also found that once you know your swing level, you can start intra-day trading whenever you're within roughly $3 of it. I explain that in detail later on. What I want to clarify now is that, while swing trading has become the more profitable and dependable price level to trade, intra-day trading remains a good strategy while you wait for the stronger swing trades to hit. I started using both systems because I found how much they complement each other. As a matter of fact, they're interdependent. Here's how: you need to know your intra-day levels in order to get a precision swing entry, and you need to know your swing levels in order to pick your proper intra-day levels. Separating the two is like the blind leading the blind.

The thing to keep in mind is that swing trading is the most advanced part of my current system. As a beginner, you should only intra-day trade until you have more expertise. You'll make very little in profits, and you'll run the risk of having to stop-loss at the close, but I'd rather have you safe than sorry, and not holding overnight, until you master my system.

Mastery means you're swing trading, or what I like to call Fusion Trading. I introduce you to my full system in Part 4, which details my new and time-tested Fusion Trading system.

• My new system works only when trading stocks between $100 and $250.

As I mentioned previously, the bull market has pushed most of the stocks that work with my system to well above $100. Therefore, I've had to adjust it to work with higher-priced stocks between $100 and $250. In The Truth About Day Trading Stocks, I stress the importance of starting with $10 stocks and working your way up to $50, then $100. This is for intra-day trading only, and only for practicing when demo trading. (Even in that original training program I was using $100 stocks, but that was because I knew how to trade them. The entire theme of my first book is about keeping you safe with low risk as you learn, especially if you're not under my mentorship.)

I get this question all the time from traders who are reading my first book: “Does your system still work with $10 stocks?” I always respond that it has never worked, not unless you like waiting all day for a 15-cent profit ($15). Some third-world citizens earn more than that in one day!

Think about it. Low-priced stocks only have intra-day price ranges of 10 cents to at most $1. You would not make much at all if trading this system with stocks priced under $100. Not to mention you would need to trade more than 100 shares on each position, thus driving your pay-per-share commission through the roof. Again, teaching trainees to trade with $10 stocks is only for training purposes.

The most consistently traded stocks are priced in the $100–$250 range. We day traders know consistency is everything. If you're ever queried about this, here's a good way to respond: “We need stocks over $100 simply because they move fast and have high volume, and most importantly, because they're very liquid. And we don't want stocks over $250, because they move too fast and take up way too much of our capital.” During the stock-picking portion of this book, I pinpoint the stocks in that range.

• I can now hold positions overnight only if I'm in a swing trade.

As I've mentioned before, holding overnight was a huge no-no when I started coaching intra-day trading. The term intra-day says it all: those newly formed levels are meant to only last that day. The only safe exceptions are the levels that have formed on a daily chart, meaning previously established levels that have held for several days to form strong support and resistance price levels. Those strong levels are proven pivot points that under certain circumstances can be held overnight for a profit the next day or even further out.

I can't tell you how many times I've had graduates of my original training program contact me while tearing their hair out, wondering what to do next, after they've held weak intra-day position trades overnight. Here's what I always say:

If any of you who have done that are reading this, you know you broke the Golden Rule of intra-day trading. Hopefully by now you can look back and laugh.

But here's the thing. If you learn to apply my new system, entering at a well-established swing price, then the Rule no longer applies. Those levels are much stronger than an intra-day level and in many cases should be held overnight.

Yes, with my upgraded system, you do the forbidden: you hold overnight. You just have to know when you can, and I clarify this later. Meanwhile, I can't say it enough: this new book is only the framework. You don't want to attempt my new system with real money until I've formally and properly coached you.

• I allow trades to run for at least $1.50 in profits per 100 shares—in some cases $5.00+.

This update is pretty straightforward. I reemphasize that the $1.50 minimum profit on a trade only pertains to a swing position. Again, only swing trades can profit more than 15 cents per trade. The new swing levels you'll see in this framework will be extremely strong levels, enabling you to sensibly take more profits. In certain cases $5+ can be a profit. For instance, trading strong levels after earnings release can be very lucrative.

When I mention huge gains it's exciting, but if you don't use this system properly—don't have it taught to you properly—you can easily lose $5+ on the trade, and then you have to stop-loss because you picked the wrong levels at the wrong time and had the wrong amount of shares. It took me years to learn when to take more or less profits, and how many shares at certain levels. So many variables come into play. I chart the majority of them in this book, but it's up to you to remember that this is just the map, not the road.

• I now trade the day after earnings, off earnings price levels.

If you don't have a solid trading system in place, and you don't stick to your rules, then earnings release dates are by far the most dangerous times to be trading. Though I have an established system for trading during earnings season, my new swing system allows for you to enter a trade the day after an earnings release. Yes, I wait till Wall Street decides what the highest and lowest price will hit just after earnings release, and then I trade off those price levels the next day. This is the only time you can capitalize on much larger profit runs.

Of course, I can only show the framework here, with only one example, and that's like showing aliens a human and saying every human is its clone. The point is: each stock trades differently and at different speeds, so you really have to know your stock if you're out there trading off earnings.

Accordingly, here's one part of the Golden Rule that hasn't changed, and never will:

• My training program has grown from two weeks to one full year.

Because the most risky time to trade is earnings season, I decided that the best way to help you master my system is to have you remain in my program for an entire year. That way you receive four real-world experiences with earnings release dates. Whether you're trading one stock or ten, you need my coaching during these four periods each year. Without a doubt, earnings season is the most active time in the markets. Even my graduates still struggle with getting this period correct.

Many of you have already been under my training, some in my initial two-week program, then in my four-week program, and finally in the six-week program that covers the entire core training. In the past I've offered to coach for a whole year, and found that most traders either don't want to pay my tuition fee or simply believe they've learned enough to do it on their own. The truth, however, is that the longer my trainees remain with me, the better they tend to do. Most graduates who haven't stayed under my wing are likely not doing so well. I've surveyed several and found that two common denominators have led to their downfall: (1) earnings season wiped them out, and/or (2) they threw half my rules out the window.

When trading under my watch, you don't make those mistakes, not without my literally yelling at you to stop. And now that my program lasts much longer, you have months to gain skills under my supervision. Mastery of this system comes with months of live trading while watching my trading rooms and questioning me in real time on setups—both entries and exits. There is no fast-track formal training.

Do lawyers squeeze their training into measly four-week courses and then take on murder trials? Law school takes three years for a reason.

• I offer Golden Rules for intra-day setups

I will be explaining the new Golden Rules in Part 2. Essentially, these short and easy-to-remember directives will keep you in a trade until it profits, or will keep you out and safe on the sidelines.