a spouse’s salary or other earnedincome. If after offsetting other income, the qualifying TIS withMMA has a net operating loss (NOL), that NOL may be carriedback 2 years and then forward 20 years, thereby enabling the qualifying individual to receive refunds of taxes paid in other years.MMA essentially means that the active trader in securities isengaged in a trade or business and reports gains and losses onboth open as well as closed positions. Open positions at end ofyear are marked to current market value as if the position hadbeen sold and a corresponding gain or loss is recognized on thetransaction. The following tax year the “tax basis” in the securitybecomes its market value at the end of the previous tax year.
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As one can see, this methodology of reporting gains andlosses from trading activities is of great benefit to those qualifying individuals. Any individual who otherwise qualifies shouldtherefore make an election with the Internal Revenue Service tobe treated as a “trader in securities” with a valid “mark to market” election.
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here are two basic classes of orders you can use in yourtrading: conditional and unconditional. Conditional ordersput time, price, or quantity stipulations on your orders.Unconditional orders have no restrictions. Using the right orderat the right time can often mean the difference in profit or loss.Also keep in mind that many of these orders are not acceptableto various electronic trading systems.all-or-none order—Your order is to be filled completely or not atall.cancel former order (CFO)—Your current order is to be canceledand replaced by the new order. You would use this type of orderto change one element of the order such as the price or quantity.day order—Your order is good only for the “day” or trading session in which it has been entered.discretionary order—You are giving trading authority to someone else, often your broker. This could be full discretion, inwhich the broker makes all the trading decisions. Or it could belimited, in which you decide on the security, whether to buy orsell, and the quantity. The broker has discretion on time (when toexecute the trade) or at what price to execute.fill-or-kill (FOK) order—Your order must be filled completelyand immediately or it is canceled.good-’till order—You set the time or date the order is to be canceled.good-’till-canceled (GTC) order—Your order is to remain in themarket until the order is filled.limit order—You set a limit on the price you will accept. Yourorder must be filled at that price or better.market order—Your order is to be filled immediately, no matterthe price.
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market-if-touched (MIT) order—When the security reaches theprice you have specified, your order becomes a market order andis immediately filled.market-on-open order—Your order should be filled during theopening period of a trading session.market-on-close order—Your order should be filled during theclosing period of a trading session.stop order—You place a “stop” price. When that price is hit, yourorder becomes a market order.stop limit order—You place a “stop” price. When that price ishit, your order becomes a limit order.
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WEB RESOURCES
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he World Wide Web is populated with some of the finestweb sites pertaining to electronic trading—online andEDAT. At the same time, it is a fertile hunting ground forunscrupulous stock manipulators. “Know Who Is Behind EachWeb Site You Consult!” Trading and investing are businesses inwhich it pays to be paranoid. Just as you have been taught to lookfor confirmation in the leading indexes, seek more than oneopinion before following advice, particularly freely offeredadvice, found on the Internet.Always take your time. Check and double check. Do notjump into a trade on a tip. Search reputable web sites for confirmation and more details. You will never be out of good trades.No trade is so special you cannot pass it up.With that said, take some time and become familiar with theweb sites listed below. Naturally, we would first like to inviteyou to our web sites, www.maketwise.com for EDAT traders,online traders, and for information on our stock trading schools.
GENERAL WEBZINES AND FINANCIALNEWS SITESABC NewsBarronsBloombergBusiness WeekCNBCCNNfnDow JonesEconomistFinancial Newsletter NetworkFinancial Times
www.abcnews.comwww.barrons.comwww.bloomberg.comwww.businessweek.comwww.cnbc.comwww.cnnfn.comwww.dowjones.comwww.economist.comwww.financialnewsletter.comwww.ft.com244
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FortuneFox Market WireHolt Stock ReportInc.OnlineInvestors AllyKiplinger OnlineMarket TechniciansAssociation (MTA)Money.comMotley FoolNews AlertRed Chip ReviewRed Herring OnlineReutersSilicon InvestorSmall Cap InvestorSmartMoney InteractiveStock CityStock DetectiveStockScreenerStockSite.ComStockTalkStockZ.ComStreetNetTheStreet.ComThomson Investors NetworkUSA Today MoneyWall Street JournalWorthYahoo! FinanceZacks Investment Research
www.fortune.comwww.foxmarketwire.comwww.holtrepoet.comwww.inc.comwww.InvestorsAlly.comwww.kiplinger.comwww.mta.orgwww.pathfinder.com/moneywww.fool.comwww.newsalert.comwww.redchip.comwww.herring.comwww.reuters.comwww.siliconinvestor.comwww.smallcapinvestor.comwww.smartmoney.comwww.stockinfo.standardpoor.comwww.stockdetective.comwww.stockscreener.comwww.stocksite.comwww.stock-talk.comwww.stockz.comwww.streetnet.comwww.thestreet.comwww.thomsoninvest.netwww.usatoday.com/moneywww.interactive.wsj.comwww.worth.comwww.yahoo.com/financewww.zacks.com
SPECIALTY SITESInsider Buying and SplitsCompany SleuthEDGAR Online
www.companysleuth.comwww.edgar-online.com
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InsidertraderInsider WatchStock Rumors
APPENDIX C
www.insidertrader.comwww.cda.com/investnetwww.stockrumors.com
Up and Down GradesBriefing.comJagNotesTheflyonthewallcom
www.briefing.comwww.jagnotes.comwww.theflyonthewall.com
Stock ExchangesAmerican Stock ExchangeChicago Board of OptionsChicago Board of TradeChicago Mercantile ExchangeChicago Stock ExchangeNASDAQ ExchangeNew York Stock ExchangeNew York Mercantile ExchangePhiladelphia Stock ExchangePacific Stock Exchange
www.amex.comwww.cboe.comwww.cbot.comwww.cme.comwww.chicagostockex.comwww.nasdaq-amex.comwww.nyse.comwww.nymex.comwww.phlx.comwww.pacificex.com
GovernmentNational Association ofSecurities DealersSecurities and ExchangeCommission
www.nasdr.comwww.sec.com
Data FeedsData Broadcasting Corp.Data Transmission NetworkOmega Research, Inc.PCQuote
www.dbc.comwww.dtn.comwww.historybank.comwww.pcquote.com
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Tax AccountingMann & Company
www.daytradertax.com
EducationMarket Wise Securities, Inc.Dr. Yardeni’s EconomicNetworkFinanceWiseGreenJungleTeachdaqMarket Technicians Association
www.marketwise.comwww.yardeni.com/econews.htmlwww.financewise.comwww.greenjungle.comwww.teachdaq.comwww.mta.org
BOOKS OF NOTECohen, Bernice. The Edge of Chaos. Wiley, 1997.Farrell, Christopher A. Day Trading Online: Start Trading for aLiving Today. Wiley, 1999.Jurik, Mark (editor). Computerized Trading: Maximizing DayTrading and Overnight Profits. Prentice-Hall, 1999.Lefevre, Edwin. Reminiscences of a Stock Operator. Reprint, 1994.McCafferty, Thomas A. All About Options: The Easy Way to GetStarted. McGraw-Hill, 1998.Nassar, David S. How to Get Started in Electronic Day Trading.McGraw-Hill, 1998.Schwager, Jack D. Market Wizards: Interviews with Top Traders.Simon & Schuster, 1989.Schwager, Jack D. The New Market Wizards: Conversations withAmerica’s Top Traders. HarperBusiness, 1992.Seligman, Martin E. P. Learned Optimism: How to Change YourMind and Your Life. Simon and Schuster, 1998.Wolfe, Tom. The Bonfire of the Vanities. Bantam, 1988.
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INDEX
A/D, 146, 150Account size, 19Accumulation/distribution (A/D), 146,150Active traders. See Interviews with activetradersAfter hours trading, 92, 93Aggressive sellers, 107, 108All About Options (McCafferty), 120All-or-none orders, 240American Stock Exchange web site, 79Analysts, 68Arbitrage opportunities, 75Archipelago ECN (ARCA), 109, 110Attitude, 203, 204Author’s web site, 244Averaging down, 58Averaging winners, 57, 58Ax, 98Balance, 230, 231Bandwidth, 179Berndt, Peter, 155Beta, 67Blueprint, 9Bond prices, 90Book, 108Books of note, 247Breakdown, 138Broker’s call rate, 19Buddy system, 173Buy write, 124Cable modem, 182Call bull spread, 128, 129Call options, 121–124Cancel former order (CFO), 240Candlesticks, 143
Capital considerations, 18–21Central processing unit (CPU), 184Certainty, 48–50CFO, 240Change, 2, 228Chaotic stocks, 69, 72Charts. See Technical analysisChasing trades, 97Chat rooms, 82Clarity, 88, 89Cleaning the book, 95Clearing, 179COE, 60Cognitive intelligence, 225Cognitive learning, 22Commission costs, 199Commitment, 226Competency matrix, 27Computer system, 184, 185Conditional order, 240Conditional order entry (COE), 60Confirmation, 97, 98Connecting to Internet, 180–182Conscious competence, 27Conscious incompetence, 27Contra, 179Conviction, 6, 7Correlation, 73Cort, Darin, 207–209Covered call, 124, 125CPU, 184Daily mood of the market, 89Data feeds (web sites), 246Day order, 240Day trader mindset, 48–50Day trading, 14, 16, 17, 98, 166, 168, 169Delta, 122
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Digital satellite dish, 182Digital subscriber line (DSL), 181Discipline, 59, 111, 113, 196–198Discretionary order, 240Don’t fight the tape, 61Doubt, 117DSL, 181Earnings- and revenues-driven environment, 86, 87Earnings announcements, 80ECNs, 33, 34, 37, 108, 109Economy-driven environment, 86EDAT platform, 180Education (web sites), 247Edwards, Robert D., 14180/20 principle, 5, 122, 123, 132Electronic communications networks(ECNs), 33, 34, 37, 108, 109Electronic stops, 111, 112Emotional hedges, 198Emotional intelligence, 225Emotions, 103, 194, 198Entering trades, 83–99ax, 98chasing stocks, 97confirmation, 97, 98fair value, 91, 92limit orders, 94–96market makers, 98, 99market orders, 93, 94pre-/post-market trading, 92, 93size the open, 90–92Evaluating performance, 153–174buddy system, 173journal, 172spousal support, 173, 174trade analysis, 161–171traders’ quiz, 157–161updates/reviews, 172, 173Exchanges, 36Execution, 34–38, 108–110Exiting trades, 101–117change your perspective, 116, 117commission costs, 199doubt, 117electronic stops, 111, 112execution system, 108–110exit on reaction, not price, 114market is unfair, 114, 116maturation of hard/soft data, 112,113mechanical exit strategies, 106–110mental stops, 110, 111taking profits, 113, 114
INDEX
Exponential moving average, 141Extended hours, 92Failure rate, 26Fair value, 90, 91Fill-or-kill (FOK) order, 240Financial futures, 74, 75, 90, 91, 121Financial pressure, 228FOK order, 240Front-running, 194Fun, 231Fundamentalists, 88Futures, 74, 75, 90, 91, 121Gaps, 52–54Getting trapped, 69Good-’till-canceled (GTC) order, 240Gravitational pull, 75Greed, 3, 59GTC order, 240Hard drive, 184Hardware, 184, 185Hedge funds, 76Hedging risk. See OptionsHigh-volume pullbacks, 146High-volume rallies, 146, 147Hitting bids, 66Holding positions over weekends, 13Honest stocks, 67House rules, 20Houtkin, Harvey, 28Humility, 193Hybrid trading platform, 180Idle policy, 183Imposed discipline, 111, 173In-the-money options, 124Index arbitrage, 91Indicators, 139–142Initial public offerings (IPOs), 65, 70, 194Insider buying/splits (web sites), 245Instant cross, 108Instincts, 139, 201, 202Instinet, 33Integrated services digital network (ISDN),181Intelligence, 225Internet connectivity, 180–182Internet service provider (ISP), 183, 184Internet web sites. See Web sitesInterviews with active traders, 205–226Cort, Darin, 207–209Johnston, Chris, 210–212Lackey, Richard, 212–215
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Interviews with active traders (Cont.)Lupien, Bill, 221–225Nick, John Walters, Jr. (Jack), 215–221Intraday margin call, 19Invisible hand theory, 113, 229IPOs, 65, 70, 194ISDN, 181Island ECN (ISLD), 109, 110ISP, 183, 184Japanese candlesticks, 143Johnston, Chris, 210–212Journal, 9, 10, 172Knowledge, 21, 22Labels, 201Lackey, Richard, 212–215Leading limit order, 94Learning curve, 203, 226Level II screen, 29, 30Lifestyle, 227–231Lift offers, 66Limit order, 94–96Liquidity, 66–72Live data, 187Live order, 186Live within your means, 228, 229Long bond market, 90Losers, 60, 61, 195Losses, 202Low-volume pullbacks, 147, 148Low-volume rallies, 148, 149Lupien, Bill, 221–225MACD, 141Macroview, 89Magee, John, 141Maintenance call, 20Margin, 18–20Margin call, 19, 20Mark to market accounting (MMA),234–237Market education, 21, 22Market impact cost (MIC), 60, 96, 108Market-it-touched (MIT) order, 241Market makers, 98, 99Market-on-close order, 241Market-on-open order, 93, 241Market order, 93, 94Marrying a position, 103McCafferty, Thomas, 120McMillan, Lawrence G., 120McMillan on Options, 120Mechanical exit strategies, 106–110
Mental stops, 59, 110, 111Mentor, 3–7MIC, 60, 96, 108Mind management, 191–204, 225, 226attitude, 203, 204commitment, 226discipline, 196–198emotional intelligence, 225emotions, 194, 198humility, 193instincts, 201, 202labels, 201losers, 195losses, 202money management, 198–200news, 195stock tips, 194MIT order, 241Mixing disciplines, 60, 61MMA, 234–237Momentum-driven environment, 87Momentum trading, 13, 88, 139Money flow, 67Monitor, 185Moving average convergence divergence(MACD), 141Moving averages, 140, 141Multidimensional trading, 51–55, 150Multiple monitors, 185NASDAQ 100, 78Net credit position, 128Net debit position, 128New trader, 167, 170, 171News, 195Nick, John Walters, Jr. (Jack), 215–2211000-trade learning curve, 203, 226Online trading, 179Open, 55–57, 90–92Options, 119–133acquire trading experience, 131, 132call, 121–124covered call, 124, 125delta, 122hedging, 128protective put, 126, 127speculation, 128synthetic positions, 128–131theta, 122trading around a post, 125, 126vega, 122Options Tool Box, 130Order flow, 38–40Order routes, 35
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Orders, 239–241. See also Limit order;Market orderOscillators, 141Overconfidence, 199–201Overnight margin call, 19
Research, 13, 76–82Research reports, 68Resources. See Books of note; Web sitesRestriction 2, 19Risk elastic, 197
P&L report, 173Pace yourself, 201Partnering, 173, 174Passion, 3, 78Passive sellers, 107, 108Patterns. See Technical analysisPenny stocks, 69Personal knowledge and skill survey, 7, 8Philadelphia Stock Exchange web site, 79Ping, 188Plan, 9–14Plunger, 163–165POTS, 180Pre-/post-market trading, 92, 93Precision execution, 34–38Preparing to trade, 1–22capital considerations/margin, 18–21knowledge, 21, 22mentor, 3–7personal knowledge and skill survey, 7, 8written plan, 9–14Pressure points, 32–34Primary market, 36Profit-and-loss statement, 173Profits, 59, 60, 113, 114Program trading, 91Protective call, 127Protective pull, 126, 127Protective stop, 60, 127Psychological aspects of trading, 225. Seealso Mind managementPullbackshigh volume, 146low volume, 147, 148Pure discipline, 197
S&P 500, 78Satellite connection, 182Saturation, 71Scared money, 20, 21“Scared Straight,” 64SEC filings, 80Secondary market, 36Secret of the SOES Bandits (Houtkin), 28Sector rotation, 75, 76SelectNet preference, 109Self-doubt stage, 155Self-evaluation. See Evaluating performanceSelf-sabotage, 200Setbacks, 230Shadowing the ax, 99Short-term momentum swings, 88Shorting stock, 197, 198Silver bullets, 6Simple moving average, 140Size the open, 90–92Sizing a trade, 54, 86Smith, Adam, 113SOES bandits, 28Soft data, 142–144Specialization, 72–75Speer Leeds and Kellogg Redi system(REDI), 109SPGlobal.com, 80Spontaneous trading, 106Spousal support, 173, 174Spread, 128Standard & Poor’s web site, 78Starting up, 167, 170, 171, 230Stock options, 121. See also OptionsStock picking services, 82Stock selection, 63–82criteria for tradable stocks, 66–68liquidity, 66–72research, 76–82sector rotation, 75, 76specialization, 72–75Stock tips, 194Stop limit order, 241Stop-loss price, 110Stop order, 241Stops. See Exiting tradesStrategy, 26Strike price, 122, 124
Quarterly conference calls, 80, 81Rallieshigh volume, 146, 147low volume, 148, 149Random access memory (RAM), 184Range trading, 14, 16, 17, 98Real-time price quotations, 187REDI, 109Redundant systems, 187Reg T call, 19Regulation T (Reg T), 18Relative volume, 149, 150
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Supply and demand imbalances,43–48Support, 71Survival of the fittest, 22Survive, 99Swing trading, 15–17, 54, 98, 116, 139Synthetic positions, 128–131T-1 connection, 182T+3, 18TAS screen, 30–32Tax laws, 233–237, 247Technical analysis, 81, 88, 135–151basic principle, 140candlesticks, 143high-volume pullbacks, 146high-volume rallies, 146, 147indicators, 139–142low-volume pullbacks, 147, 148low-volume rallies, 148, 149moving averages, 140, 141oscillators, 141relative volume, 149, 150soft data, 142–144technical ranges, 137–142volume, 144–150Technical Analysis of Stock Trends(Edwards/Magee), 141Technology, 175–189bandwidth, 179computer system, 184, 185connecting to Internet, 180–182ISPs, 183, 184redundant systems, 187trace routes, 188, 189trading systems, 179, 180Technology impact cost (TIC), 178Theta, 122Thick stocks, 48Thin stocks, 49Third market, 36TIC, 178Time and sales (TAS) screen, 30–32Time horizons, 50, 51TIS, 235–237Top-down research approach, 76–82Trace routes, 188, 189Trade analysis, 161–171Trade entry. See Entering tradesTrade evaluation. See Evaluating performanceTrade exit. See Exiting trades
Trader in securities (TIS), 235–237Traders’ quiz, 157–161Trading around a post, 125, 126Trading insights. See Interviews withactive tradersTrading into a trend, 114, 115Trading plan, 9–14Trading systems, 179, 180Trading trend reversals, 114, 115Treadmill of life, 229Trend trading, 15–17TRIN, 31, 32Unconditional orders, 240Unconscious competence, 27Unconscious incompetence, 27Up/down grades (web sites), 246Updates/reviews, 172, 173Upticks, 197Vega, 122Vertical spreads, 128Video card, 184, 185Volatility, 72Volume, 68, 144–150Wash sale rules, 235Web-based trading system, 179Web mentor, 6Web sites, 243–247author’s, 244data feeds, 246education, 247general information, 244, 245government, 246insider buying/splits, 245stock exchanges, 246tax accounting, 247up/down grades, 246Weekends, 13Whipsaw risk, 197Wireless connections, 182Workaholic, 204Written plan, 9–14www.amex.com, 79www.cboe.com, 81www.marketwise.com, 244www.phlx.com/index.stm, 79Yan, Stan, 65Zero-sum game, 131
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ABOUT THE AUTHOR
David S. Nassar is chairman and CEO of Market Wise Securities, Inc., oneof the nation’s first electronic trading brokerage firms. Market WiseSecurities is recognized as a leader in the training and development ofhighly active retail and proprietary traders. An active trader and a pioneerin the electronic trading industry, Mr. Nassar is the author of the New YorkTimes, Business Week, and Wall Street Journal bestseller How to GetStarted in Electronic Day Trading. David is a powerful and highly soughtafter public speaker on the markets and has spoken and appeared at venuessuch as MIT, CNBC, CNN, Fox News, and the NBC Nightly News withTom Brokaw. Public speaking engagements and company contact information can be obtained at inquires@marketwise.com or visit www.marketwise.com.
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