16 Great Day Trading Tips
Day trading is a popular career choice for a number of reasons, but likely the number one reason is because day trading is a career that anyone with a computer, an Internet connection and a little know-how can do. However, it takes a bit more than that to be truly successful. In fact, tens of thousands of people try every year to break into day trading, but are unsuccessful and end up going back to work for someone else. It is because of this that I wanted to share with you 10 amazing tips that will help you become a better day trader that is more likely to make money and be successful.
Before starting the trading day, it’s important to draw up a trading plan. This is going to allow you to focus more easily on your daily goals. The only real secret to this step is that you need to follow your discipline and execute your trades appropriately from their on out. Probably the worst thing that day trader can do is to win on the back of a losing trade. If they do this once, then it’s highly likely that they will continue to make the same mistake repeatedly. The result of doing this can be a wide variety of problems, the least of which could be a large dent in your bank or trading account. In turn, the long-term result might end up being psychological problems that make trading in the future more difficult or impossible. Anxiety and paranoia is the enemy of success, so avoid this at all costs and you’ll avoid many problems down the road that you should not and won’t have to contend with, if you don’t make this mistake to begin with in the beginning. Remember, you can’t control the market, but you can control yourself.
Learn to Trade the Closing Gap
This is the “secret” that many professional traders master to become successful. Why? Because this is a very reliable and low risk strategy, which you’ll be able to deploy with easy once you master the correct technique. This is going to be how you go from loser to winner in a very short period of time, so it’s important that you learn this strategy right away. Failure to do so could mean that you are setting yourself up for failure of your day trading career.
Learn that Your Market Has a Unique Personality
When it comes to trading, there is significantly more to it then learning about bar charts, chart patterns, and moving averages. If you just focus on these things then you’re missing out on some of the most important aspects of trading. There’s a lot more that you need to tap into if you want to be successful and want to have an edge in the markets. There are many personality traits that you’ll need to learn. An example of a personality trait of the market is that Mondays tend to be bear days and Tuesdays tend to reverse Monday’s gains and will have a bullish tendency. If you’re able to master these personality traits, then using the charts, chart patterns and moving averages will be secondary, because many times you’ll find that you already know what the market is going to do. It’s this pre-existing knowledge that is going to give you the true edge that you are looking for and that is going to allow you really build on your success as a day trader. Get to know the market like it’s your favorite uncle and you will succeed.
Don’t Focus on Your Profit and Loss Accounts (P & L Accounts)
When you’re trading, the last thing that should be playing in your head is how much money you’ve made or loss at any given time, but rather you should be focusing on your charts and if you’ve completed the first tip I gave (prepared appropriately) then you should know when to exit your trade and when to enter your trades. Focusing on profit and loss at any given time is going to result in emotional stress and trauma. This is going to prevent you from being your best.
Quality and Not Quantity
As a trader there is a common misconception that you must trade every single day. This is simply not the case. While you should be trading most days, you should avoid trading on days when you don’t have a clear or an easy setup. Be patient and wait, because if you do then you’ll be nearly guaranteed 2 or 3 easy trades that you make. Remember the saying, “patience is a virtue” and this is especially true in the day trading field. Don’t let your emotions get the best of you or force you to make a decision that you wouldn’t normally make. The thing that is going to separate the winners from the losers is the ability to wait for the right timing and the right situation before trying to execute a trade. Losers will rush things and make trades because they feel like they must make money. If you do this then you are ultimately setting yourself up for a loss. In the long run it is always better to remember that less is more. Focus on the trades that you KNOW will be a success and avoid pushing or forcing trades that might not be such a hot idea.
Don’t Be a Bear on the First of the Month
If you try push the first of the month then you’re going to be competing with large pension funds and mutual funds, which is going to make your trades more difficult to predict. You could look into a low risk breakout strategy, such the five-minute bar to confirm any trade setups that you do have. It’s wise to play the first of the month cool though and be careful with a trades that you do make. The emotional trauma from a large loss on the first could make the rest of the month significantly more stressful.
Persevere: Fortune Comes to Those that Never Quit
I read an article a few years ago that said it takes about 10,000 hours to master any given subject. That means that if you work at something 40 hours a week, it will take you over 10 years to master it. So while things will get easier as you learn, it’s going to take time to master trading. Fortunes do not come to those that quit easily. If you are trying to get into a low risk trade, it may take multiple attempts. Professional traders will sometimes try up to 4 times to get into a low risk trade. But it’s this perseverance that is going to lead to success in the long run. Small losses in trading shouldn’t be seen as a negative, but rather they should be seen as a strengthening of the mind. It’s the large losses that you must avoid. Too many people are too willing to quit after things don’t go exactly as planned. Remember that you should never fear failure. The fear of failure is paralyzing and will only harm you in the long run.
K.I.S.S. – Keep It Simple Stupid
This is probably one of the most over used acronyms that there is, but it is so universal and that’s why managers and leaders love to use it. When it comes to trading it very true as well. Keep your strategies as simple as possible because there will be less room for error and a higher likelihood of success. The more complicated your system is, the less likely that you are to succeed. Experts agree on this tip, don’t try and over complicate things and know your system backwards and forwards if you want to achieve success. Doing this will allow you to apply discretion and adapt to the market, giving you the ability to know when you should avoid your system altogether. The end result of doing this will help lower you drawdown periods. Remember that you are ultimately responsible for knowing when to say know and having a simple system is what is going to allow you do this with ease. So many traders are ultimately failures because they want to create an amazing but over complicated system, which in the long run will prevent them from succeeding. Don’t be that guy!
You Cannot Gain an Edge on the News
Sentiment is what ultimately drives markets, not a positive or negative news piece. In other words, what one person, might perceive as positive, could appear negative to another. That’s why it’s important to understand that it’s very difficult to call the market based on a piece of news. The smarter move is to put a stop in place to guarantee a profit, or even just stand aside and let the news travel it’s course before making a major play. Then you can assess when to enter the market after that happens.
Large Egos Mean a Harder Fall
Professionals will tell that 80% of the time the market is sideways trading or it’s consolidating, so you’ll have access to some extremely easy and low risk trades when you see this type of market. Failed traders OBSESS with trying to catch the big moves that end up resulting in a big losses or no profit at all. It’s very difficult, in practice, to pick the actual tops and bottoms of the market. So keep your egos in check and focus focus focus on deploying low risk strategies that are going to result in solid and consistent profits in the long run.
Have a Specific Account for Your Trading Funds
We’ve already talked about how important it is to not focus on individual gains and losses, but another tips along these lines that is going to result in less stress (and hence more success) is only using money that you can afford to risk. If you are constantly concerned about breaking then bank, then you may not make the best decisions all the time. So save up a specific amount and only use that money for trading. Don’t withdraw from that account until you’ve reached a specific goal and view much as a gambler would view their bankroll, a flexible extension of their business that comes and goes. If the funds you are using are supposed to be used for something else, like a family project or similar, then you are absolutely doomed to failure. Don’t let this happen, make sure you keep your day trading funds separate and this is going to nearly guarantee that you are able to trade with an easy mind and not worry about “is this decision the right one.” Instead of being based on emotion, your decision will be based on empirical evidence, the way it should be.
Your temperament must be objective and you must be able to control your temperament regardless of what is going on with the market and with your business at any particular moment. Learning to control your temperament is absolutely the key to being successful, because while one minute the market could be failing to execute the way expect it to, the next things could turn around and you need to be ready for that change if you want to profit. That’s why it’s so important to know yourself as a day trader. Changing your mind and your position every few minutes will ultimately result in failure.
You can test the waters and your abilities by using demo software or by trading on a small scale. This may not make you any money, but it will allow you to see your own strengths and weaknesses, which will help you earn more in the long run. Even the best traders in the world had to start somewhere, and while it may take you those 10,000 hours to be a master, you have to begin within you own level first.
Don’t Trade Too Many Markets at Once
Especially as a beginner it’s important that you don’t over extend yourself and that you don’t’ attempt to trade in too many markets at once. This is a common mistake that those that lack experience make. They tend to jump in headfirst and try to trade in multiple markets, using multiple systems and the end result is that they aren’t able to profit in any of them. This has a catastrophic on mentality, especially as a beginner and can lead to ultimate failure. Remember, go in feet first and test the market one market at a time. Even the top guys find it difficult to trade different asset classes at the same time, because independent factors move these markets.
Don’t Over Commit
A good rule of thumb for this rule is to keep 3 times the amount of money needed for a position in your account. This is going to help you avoid making decisions based on the amount of money in your margin account. The last thing that you want to do is (again) make a decision based on the fear of loss or fear of lack of gain. These are poor emotions that will damage your ability to trade effectively.
Buy the Right Equipment for the Job
It’d be easy to write 1000 words on all of the recommendations for a professional trader to have, but rather than do that let’s just focus on some of the big ones that you want to make sure that you have before you begin trading.
- A reliable multi-monitor computer system. In particular, you need to make sure that your computer has enough power and speed to easily power 2-3 monitors. The reason for this is simple, you need to execute trades quickly and easily and having multiple monitors so that you can organize your materials and programs more easily is an essential.
- A strong, fast and reliable Internet connection (or 2 for that matter). Anything less 10Mb/s is simply unacceptable because you’ll end up dealing with too much lag time. And while we’re on the subject of internet connections, it’s strongly recommended that you have a back internet connection of some sort that you can quickly change over to if your first one goes down unexpectedly, as tends to sometimes happen. You can purchase a cheap DSL plan for $25-30 a month and that will work fine for this purpose.
- A quiet workspace or environment. Don’t try to do your trading at your local Starbucks. You can hangout there, but leave your work at home. It’s going to be of no benefit to you to work at Starbucks. You need to have a quiet environment that will allow you to focus. The more distractions that you have, the more likely you are to make a mistake.
Well hopefully this article has been a big help for you in determining some of the key tips to being a successful day trader. Following these guidelines will lead to a much higher likelihood of success and we wish you the best on your endeavor.