Watch This Before You Start Day Trading
Kardec Trader breaks down day trading basics for beginners drawn to GameStop and AMC: position sizing, stop-losses, price action, and volume matter more than social media hype. Paper trade first. Options in high volatility will destroy your account. Real skill takes months, not weeks.
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So lately a lot of people have been getting into day trading primarily because of the craziness of GameStop, AMC and so on. And people are asking, should I trade stocks, should I trade options, how do I begin? Or even people that already have some shares in GameStop AMC. So the purpose of this video is to kind of COVID certain key things such as risk management, the proper tools to focus on main things to understand options and stocks and just kind of give you guys a little bit background and a solid understanding of trading, especially for someone that has never traded or, or even someone that just recently started. So with that being said, let's get started. So in the past few weeks or past few days, we have been seeing a craziness going on with names like GameStop, AMC and so on. We've been seeing a crazy surge in movement. Now this surge in movement has, has kind of primarily came from Wall street bets, right from, from an online form called Reddit. So that's where all of this attention has been coming and the stock has been driven to all time highs. Now what that's causing, it's causing a lot of people to get, you know, gain interest in trading, which is great, which is cool, which is phenomenal. However, what I don't want you to understand, what I don't want you guys to do is I don't want you guys to go off on the wrong path and blow your money or lose all your savings and, you know, take a big loss. And I think this is where we're headed with a lot of retail traders. So like I said, my purpose is to kind of, you know, provide valuable information and just help those people. Now the first thing I want to cover, guys, is risk management. Risk management. So risk management is the primarily first thing that I want you guys to focus on. So with that being said, if you guys are looking to get started in trading or even have traded, first thing you want to understand is you want to protect your capital. Now, protecting your capital, it applies in different risk management strategies. But the main thing I want you guys to understand is please do not take all your money, right, and go dump it in any stock that you guys see on Wall street bets, don't say, oh, they're talking about AMC. I'm gonna take my full life savings, which is 20,000, 10,000, 5,000, whatever it is, and I'm gonna dump it all in amc. Because you guys have to understand, things don't always go up forever. Things are going to fall. And if things do fall and the stock does go down, can you recover from that, are you in a position to lose that amount of money? So if you are starting and you are investing and you are day trading and make sure whatever money you use is a money you are able to lose, you are comfortable in losing. Not saying you're gonna lose that money, but I'm just trying to protect you guys because I think when all of this is done, a lot of people are going to get hurt. And I just don't want people to, you know, kind of be in that predicament. Because I've noticed online there's people taking out loans, people taking out money from line of credits, people taking money out of credit cards and so many things and just dumping it in GameStop, dumping it in AMC. Now if you are someone that's in GameStop or in AMC, one thing that I would recommend was completely up to you. I would recommend taking some money off, especially if that's money you cannot afford to lose. Guys, yes, the stock can go up higher, but the stock can also go down. And that's where risk management kicks in. So you, as someone starting out, the first thing I want you to implement into your head is risk management. You need to learn how to protect your capital, how much to apply on a stop loss basis. Now if you don't understand risk management, I have some videos on risk management you guys can check out and start applying that. So that would be the first thing. Second, like I said, when you do invest, make sure you're only investing what you are comfortable enough to lose. Now, like I said, you're not probably going to lose that money, but you still want to be safe. You still want to put yourself in a good situation. Another thing I kind of want to point out is as you guys are starting out day trading, yes, it's a cool career and it's fun and all that, but I want you guys to understand this is not something that is, it's not something where you're gonna start trading and be good at it, right? And, and what's happening with the market right now is not considered day trading. And I'm gonna give you guys an example of day trading. So right now what you're seeing is like, oh, buy Dogecoin or buy GameStop or buy AMC. We're gonna take it to the moon. That is pure speculation and pure gambling for people that don't understand risk management, don't understand why they're getting in, don't understand where they're going to take profits. And that's so many people right now. And that's not to say GameStop isn't going to go up or it isn't going to go down, but it's just taking that foundation and understanding that majority of people are doing it wrong. For my opinion. Now, the idea of day trading comes down to this. Right now there's two forms of trading which, you know, I kind of have everything scattered here, but I want to talk about there's two forms of trading. Trading number one is swing trading, where, you know, you buy a stock you hold overnight, you have a thesis, you have an edge, and you take a trade from there. Trade number two is where, you know, you day trade day trading. The whole idea of day trading could be something along the lines of, you know, you take on a trade at, let's say, this level and you get out there, right? So the idea would be, let's say you buy a stock at $820, right? If you buy one share and you sell at $830, you have now made a profit of $10. That is the idea of day trading now. But the idea of day trading comes down to a key component. It comes down to you understanding, why are you buying at 820? And this is where I want you guys to actually take notes and focus on, right? So the idea is to be like, okay, why am I buying Teslite 820? Okay, that's number one. What is my reason for buying? Test site 820. Second thing you have to apply, which going back to number one is risk management. Where if I do buy the 820 and it doesn't work out, where am I going to take a loss and where is my profit potential? This comes down to something called risk to reward ratio, right? Rrr. Or some people call it reward to risk ratio. You want to understand, does that make sense? And then going back to situation number one, you want to make sure, do you have an edge? Do you have a thesis on why this has a high probability of going up? And this is for people that want to day trade. Now on the other spectrum, there's people that said, oh well, you know, if I, I don't have that much money to buy Tesla shares, I can't buy 10 or 100. Now the alternative is you can trade options. You can trade options, right? Options are very lucrative. You don't need that much capital for options. However, guys, please be careful trading options. Like, I see people right now buying GameStop. I see people right now buying GameStop.
Options. And what you guys gotta understand, you guys gotta learn the fundamentals of options. And I'm actually thinking about making like a beginner intro course on YouTube and just pump out an hour or two video. If you guys want me to, you know, make that. Just comment down below. I don't know how many people would be interested for me to make like a two or three hour video that introduces day trading from basics to advanced to options. But you know, looking at options here, guys, the IV is 800, 700%. That's insane, right? That, that's an insane amount of IV. If you look at something normal, let's say you go to Apple and you look at the IV for Apple, you're at 62%, 56%, which is still high, right? But you're looking at insane amount of IV. Amazon that has earnings has IV that is still not at 700%. It's probably not even over 100%, 68% to 55%. And now I know I'm losing some people with IV into like, whoa, whoa, what's IV? That's exactly my point, right? You guys are starting to day trade options or stocks, you especially options. And you don't even understand the fundamentals of IV or understand the fundamentals of how options move. You're setting yourself up for failure. You're literally putting your backs against the wall. So the proper thing to do is get yourself educated, learn about options. Now before you dive into options, right, Like I said, some key things I would recommend you guys to focus on is number one, risk management. Understand risk management is key. Now going off risk management, right? Understanding the basis of trading. It comes down to focusing on the following, right? Because people have questions. What indicator do I use? What's the best indicator? What time frame? Yada, yada, yada. And I'm going to give you guys the simplest thing to kind of focus on. Number one, price action. Start off understanding price action. Day trading all comes down to supply and demand. Your job as a trader is to be able to read a chart. This is a chart. This is a candlestick chart for anyone that doesn't know and be able to read price action. So for example, in this situation, Amazon, so talking about price action, this 3350 level is a huge level of supply. We're seeing huge levels of supply, we're seeing huge levels of rejection here. So as traders, our job is to look for these key levels, understand what happens at these key levels, and then start formulating an edge where we can possibly read what may happen at these key levels or give us the best possibility of A trade that may work out in our favor. Right? So you want to start out with like I said, price action. Second thing with price action kicks in volume. Volume basically represents the total number of transactions that are happening. Now imagine a stock is breaking out of a level of supply with higher than usual volume that is showcasing increased demand, right? That's another thing you want to focus on. Now going on to indicators. I don't really use any indicators. I think you know, for day trading you don't really need to. But if you want to focus on 2, 3 indicators, 1 indicator for day trading that I would recommend is something called the vwap. That's one indicator you guys can use. And if you guys are day trading from a time perspective, I would recommend start from let's say a daily chart down to a 5 minute and a 1 minute chart if you guys are day trading. Now I know all of this sounds, you know, gibberish to some of you guys but when you start putting these pieces together and you start knowing what you need to focus on, you'll be able to cut out the outside nose. So just to recap, we got price action looking at price, volume, supply and demand. Understanding supply and demand. Then you got looking at maybe VWAP on a smaller timeframe. Then you got knowing at what time frames to look at. Now if you are starting right, one thing I would recommend to do just to kind of get your feet wet before dumping in a lot of money and most likely losing it and then getting discouraged is open up something called a paper trading account. A paper trading account basically allows you to trade the real markets with fake money. Now now the benefit of that is if you mess up, you don't lose anything. If you make money, obviously it's not your money but it allows you to practice, get a feel of the market, get a feel of the platform and just start putting things together. Now obviously paper trading is a lot different than real trading. But I would highly recommend that for you guys to do so you guys can practice with not really like not losing money at all technically, right? That's the second thing. So you can start paper trading. You can look at thinkorswim by TD Amaruche to paper trade. They have a good paper trading platform going back to main things to understand and proper tools to focus on just, just basically what I was covering, price action, vwap, volume. Just focus on these things. Ignore the rsi, MACD and all this crazy volume stuff, right? Go and open up a paper trading account right now. And as you're Opening up that paper trading account, start applying those things. Look up YouTube videos. Like I said, I'm thinking about making a video, one or two hour video covering a lot of the basics. If you guys would like that comment down below. I don't know how many people would be interested because I am noticing a hu surge in demand on people wanting to get, you know, involved in day trading or trading itself, which I think is great. But I also think it's very bad because what's happening is, you know, so many people that don't understand the basic functionality of the market are jumping in, looking to get rich in a short period of time, which is not the reality of the market, right? And then, last thing I want to leave you guys off with, and this is the main important part that I want you guys to really, really understand.
About day trading. And this is what it comes down to, right? So day trading, guys, is all a probability game. It's all a probability game with measured risk. That's what day trading is. That's what trading is in general. So what I mean by a probability game is when you do understand price action, you can read if a stock is going to go up or down what it has the highest possibility of doing. That's where you create something called an edge. What is your edge? Let's say, for example, you are trading a stock that's hitting a low of the day with a weak market that's aligning with your thesis that is now giving you an edge. So let's say we take an example, example A, we got stock a here at $10, right? As stock A here is at $10, we might say, okay, I think stock A because of past movement. And I'm gonna be very simple here. I'm not gonna go into advanced stuff. I'm just gonna kind of COVID the basics. Let's say in the past we saw something like this happen. And guys, this is very simple. It's not this easy, but I'm just trying to make it as simple as possible. This is 14. Let's say this is $13. This is 10, right? And let's say in this example, stock A comes to about 10.4. You might say, you know what? I think stock A has potential to go up because of reason A, B and C, I think it has a high probability. Nothing is 100% in this market. Just keep that in mind. I want you guys to like write that down in front of your computer. Nothing is 100%, meaning that if you buy AMC, it can go down. If you buy Gamestop, it can go down. If you sell Gamestop, it can go up. There's always both sides of everything. But you want to understand the probability. You want to understand the edge. Is the edge in your favor? Is the probability in your favor what is happening? So in this situation, let's say 1040 stock is trading at 1040, you think that it has a strong reason to go up higher. You might say, you know what, I'm going to buy one share or I'm going to buy whatever the case is, right? You buy one share and you set up a game plan. You say, you know what, if I buy this and the Stock goes below 10 to, let's say 940, right? I will cut out my trade and I will exit. And this is where risk management kicks in. You buy the stock at 1040. If it goes to 940, you. You are potentially risking $1. Now, what is your potential profit target? And for the people that have been trading and are a little bit more on the advanced side, I know this is very simple, but I'm just trying to kind of paint a picture for a lot of people that are just looking to get started, right? So at 10:40, you might say, you know what, this stock has room to move up to 13. So from 1040 to about 13, you're looking at about $2.60 of potential profit. And this is a whole nother chapter to kind of talk about where, you know, you, you want to understand where to take profits, where to cut losses. It's like a whole nother section on a whole nother topic. But like I said, I'm just trying to cover a certain component so you guys can understand and see the right way of trading. So I look at this trade, I'm like, okay, number one, I have my edge. Okay, as I have my edge, what's happening? Alongside with my edge, I see that I also have a good risk to reward ratio, meaning I'm risking a dollar to make $2.60. To me, that's a good trade. For me personally, anything above a 2.5 risk to reward ratio is good to me. So in this situation, this looks good. Now, this stock, let's say the things were adjusted and this stock was trading at. Let me adjust the color. Let's say this stock was trading instead of 1040. It's now at 1250. Now the same question comes. You didn't take the trade. Is it now worth taking the same trade with the same setup where you are potentially risking from 1250 to 940 as your stop. Let's say the stock's actually at 1240. Just for math purposes, we're a little bit good, right? Let's say we're at 1240. So at 1240, you know, we say we have about a three point potential loss. We are risking $3 to now make 60 cents. Now, you know, we might look at this trade and we might say, well, you know what, this stock has room to go up, so I'm going to take this trade. But no, the risk to reward ratio doesn't match, so I'm not going to take the trade. And now this comes apart from looking at it from a bigger picture. Like I said, looking at risk management, you have to have your edge and you also have to have your risk management applied. The reason for is. Now let's take both examples and break that down from a risk reward perspective. Now when you're trading and if you apply the proper edge and the proper risk management, right, let's say you take 10 trades, right? On 10 trades you have A. On every trade you're right, you make $3. On every trade you're wrong, you lose $1. Okay, on situation B, right? Let's say you take 10 trades. Every trade you're right, you make $1. Every trade you're wrong, you lose one dollar. In situation A, right? If you have a good risk to reward ratio, right? And in situation A, let's say you are only right four times and you are wrong six times the times you're right. Right? Four times three, you're getting $12. Because remember, each time you're right, you make $3. So 3, 6, 9, 12, you're making $12. Now, every time you're wrong, you keep your risk controlled, you keep your loss controlled, you're losing about $1. In that situation, you are losing $6 on those trades. And at the end of the day or at the end of those 10 trades, you are still net positive $6. Now obviously when you add more zeros, you add 1 0, you add 1 0, you Add 1 0. These numbers just start getting larger and larger and larger, right? It just starts increasing, increasing, increasing. So if you understand that, you can see that even if you're right 40% of the time with the good reward to risk ratio, you'll do well. Now in this situation, if you're right five times and you're wrong five times, you walk out zero. And then obviously if you add commissions, you're probably in the red. So that's where that component kicks in. Like I said about Risk management. And then, like I said, the proper tools to focus on. Once again, guys, price action. Price action. Price action. Try to understand a chart. And I know this looks very confusing, but I promise if you guys actually take the time out to invest in yourself and actually learn this, instead of taking a large chunk of money and dumping it at the market and looking to get rich quick, you'll actually do well. Because if you take a large amount of money and dump it at the market and it doesn't work out, you know what's going to happen? You're going to get unmotivated, you're going to quit, and then a year later you might come back and keep doing the same cycle. So if you really want to take this serious, guys, put in the time, put in the effort. And from a time aspect, people might have a question, okay, how long is this going to take me? I would say, you know, on the early aspect, six months. On a reasonable aspect, about a year to two years. To get good trading is a career just like anything else. You really need to master it. You really need to master yourself, which you guys are gonna understand once you get to a higher stage that a lot of it comes down to emotions. And once you start getting a gist of it, like I said, typically it takes people about a year, maybe six months. If you're fast learning, you understand the concept quicker, but it's gonna take time. And I bring that up because I don't want to feed you guys BS where, hey, you know, just follow what's going on or join my group chat and you guys are gonna make a million dollars. Because that, that's like, don't fall into that crap. Like, trust me, if you really want to take this serious, invest in yourself, learn, you know, the basic fundamentals and take it from there. And like I said, if you guys want me to make any sort of training, like a quick, you know, one hour, two hour training just to get you guys started, let me know down below. And if you guys enjoyed this, just give it a thumbs up and I will see you guys on the next video. Thank you.
